IMF Revises China’s Growth Forecast to 6% After Coronavirus

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2020-02-19

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IMF Revises China’s Growth Forecast to 6% After Coronavirus

Affected by the new coronavirus epidemic, some analysts worry that the epidemic will be detrimental to China’s as well as the global economy.

Reporters learned that the International Monetary Fund (IMF), one of the most important international investment banks, and multinational financial institution has published its forecasts on the matter.

6% in National Economic Growth

Earlier in January, an IMF spokesperson said that the epidemic coincided with the Chinese New Year holiday which is a peak consumer season. The outbreak has had a significant impact on key areas of business such as travel and consumption since most consumers decided to stay home this year.

However, the IMF believes that some of the adverse impacts of the epidemic on China’s economy will be temporary. The latest issue of the World Economic Outlook Report, the IMF raised China’s economic growth forecast for 2020 by 0.2 percentage points to 6%.

The latest UBS research report judges that in its baseline scenario, the virus epidemic is not expected to cause a slowdown in global economic growth, so risk assets should have good support in the next 6 months. The investment bank further judged that if the epidemic can be successfully contained, economic growth is expected to rebound in the next few quarters due to an increase in consumer demand and also due to the actions were taken by the Chinese government.

Quick Recovery

The economy is expected to recover quickly after the epidemic is contained. It is worth noting that most major investment banks expect the impact of the coronavirus on China’s economy to be short-lived.

UBS analysis believes that China’s proactive measures to contain the coronavirus (such as quarantine and containment) and other countries’ preventive measures (such as lifting flights and border controls) will be effective.

These measures could impact the economy in the short term due to reduced consumer demand and disrupted supply chains. However, as soon as these limits are lifted, everything will be back in order.

Deadlier Than SARS

Lu Ting, a well-known economist in China, said that the coronavirus is likely to have a greater impact than SARS in 2003.

The GDP in the first quarter of 2020 is anticipated to take a 2% hit in reduced growth. In comparison, SARS in 2003 caused a 2% slowdown to the GDP but starting in the second quarter. This is because the new virus spreads fast, has a long incubation period, and can even spread during its incubation.

Moreover, this outbreak happened right in time of the 2020 Spring Festival. This is when most of the population is traveling all around the country. Wuhan, where the virus originated, is also a major transportation hub with a significantly large population.

As a result, the virus spread quickly and affected most provinces in China within a fortnight.

Holiday Extension

Another reason why the coronavirus is going to have higher economic implications as compared to SARS is that the Spring Festival holiday was extended to counter the health emergency.

Resultantly, most offices remained shut while still having to pay salaries to their employees. Important manufacturing facilities had to postpone their projects, and with production halted, the manufacturing industry took a giant hit.

While the government works to mitigate health issues in China, we can foresee stable recovery and growth after the virus gets fully contained. Even WHO said that the coronavirus is no reason to halt trading activities with China, so we don’t expect any long-term complications.

Via ChinaTradeNews