Coronavirus impact to slow China GDP growth to 5% in 2020: S&P

February 7, 2020

SINGAPORE -- S&P Global Ratings estimates that full-year GDP growth in China will fall to 5.0% in 2020, but the ratings agency expects lost ground to be made up in 2021.

"Most of the economic impact of coronavirus will be felt in the first quarter, and China's recovery will be firmly in place by the third quarter of this year," said Shaun Roache, Asia-Pacific chief economist for S&P Global Ratings.

Our forecast growth of 5.0% in 2020 compares with 5.7% before the outbreak. We now expect above-trend 6.4% growth rate in 2021, compared with our previous forecast of 5.6%.

Notwithstanding uncertainty, S&P says, its baseline assumption is that the virus will be contained by March 2020.

In its baseline, S&P assumes that travel restrictions will be unwound gradually during the second quarter of the year.

"These restrictions directly affect economic activity in China, especially consumption," it says.

"We expect the effect to be more drawn out than in SARS, given the longer time to reach peak infections and the more vigorous policy response, especially travel restrictions, in this episode," said Roache.

"Household consumption will take the main hit, especially spending on discretionary goods and services as individuals avoid public spaces to minimize the risk of infection."

S&P says China accounts for one-third of global growth, so a 1.0% slowdown in the country's growth rate is likely to have a material effect on global growth.

"The global impact will be felt through four real economy channels: sharply-reduced tourism revenues, lower exports of consumer and capital goods, lower commodity prices, and industrial supply-chain disruptions.

"These spillovers could become larger if markets start to price in the risk of a material global slowdown, and financial conditions tighten as risk premia rise across asset classes.

"Pressure on the renminbi exchange rate will be important to track but for now, markets are taking the impact in their stride."