All 50 states have begun to lift COVID-19-related restrictions and incoming data are suggesting that economic activity is beginning to pick up, even sharply in some sectors - Photo by BBC

JAKARTA (TheInsiderStories) – Coronavirus will have a larger negative effect on the global economy than the SARS outbreak in 2003, said IHS Markit reported today (02/07). At the time of SARS, China was the sixth largest economy, accounting for only 4.2 percent of world GDP.

China is now the world’ second largest economy, accounting for 16.3 percent of world GDP. Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe.  

If the current and unprecedented confinement measures in China stay in place until the end of February, and are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8 percent in first quarter (1Q) and 0.5 percent in 2Q.

In this scenario, the coronavirus and resulting measures will reduce global real GDP by 0.4 percent in 2020. Conversely, we expect the lifting of the confinement measures to add 0.4 percent to global real GDP in 2021, as the release in pent-up demand filters through the economy.

Chart by IHS Markit

On the other hand, if confinement measures begin to lift on Feb. 10, the impact on global GDP will be more limited, resulting in a 0.1 percent reduction in global GDP growth in 2020 and 0.4 percent reduction in China’ annual growth. 

The effects of Coronavirus are most pronounced in household consumption and somewhat mitigated in the industrial sector because factories are seasonally idle during this period.  Nevertheless, in many ways China’ economy is more vulnerable today than it was in 2003, with productivity and overall economic growth already slowing and the effects of the United States (US) – China trade conflict. 

Mainland China‘ economy was the sixth largest in the world in 2002, accounting for 4.2 percent of world GDP. It is now the second largest economy in the world, accounting for 16.3 percent.

Mainland China’ impact on the world economy is also much larger now than during the SARS outbreak, meaning the slowdown in Chinese growth may be a significant drag on global growth. In 2002, China contributed 23 percent of world GDP growth, in 2019 China contributed an estimated 38 percent of world growth.

China’ share of global manufacturing value-added climbed from 6.7 percent in 2002 to 30.5 percent in 2019. Over that same span, the country’ share of world high-tech goods value-added rose from 7.2 percent to 26.3 percent.

Manufacturing now accounts for 29.3 percent of China’ economy, up marginally from 27.1 percent in 2002. The 11 Chinese provinces which have announced an extended holiday period are normally responsible for over two thirds of vehicle production in China, with projected crisis-induced first quarter production loss of around 350,000 units (minus 7 percent) if they’re idled until Feb. 10, 2020.

If the situation lingers into mid-March, and plants in adjacent provinces are also idled, said IHS Markit, the China-wide supply chain disruption caused by parts shortages from Hubei, a major component hub, could have a wide-reaching impact. In this scenario, IHS Markit predicts potential lost production of more than 1.7 million units for the first quarter, or about 32.3 percent decline from our pre-crisis expectations.

In 2019 China’ oil demand was 13.9 MM barrels a day or 14 percent of world market vs 5.6 MM barrels per day in 2003 which equated to 7 percent of world demand. China accounted for half of world oil demand growth in 2019.

Earlier, in 2003, China accounted for one third of world oil demand growth. Mainland China is now the second-largest importer in the world, accounting for 10.4 percent of the world’ goods imports, compared with 4.0 percent of the world’ imports in 2002.

Written by Staff Editor, Email: theinsiderstories@gmail.com