Coronavirus to have larger impact on global economy than SARS: IHS Markit

The outbreak of coronavirus will have a larger negative effect on the global economy than the SARS (Severe Acute Respiratory Syndrome) outbreak in 2003, as any slowdown in Chinese economy would send not ripples but waves across the globe, IHS Markit said on Friday.

The virus has brought large parts of the world's second largest economy to a standstill and its impact was felt across industries.

"Coronavirus will have a larger negative effect on the global economy than the SARS outbreak in 2003. At the time of SARS, China was the sixth largest economy, accounting for only 4.2 per cent of world GDP. China is now the world's second largest economy, accounting for 16.3 per cent of world GDP. Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe," IHS said in a commentary on coronavirus outbreak.

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 per cent in Q1 and 0.5 per cent in Q2, it said.

In this scenario, the coronavirus and resulting measures will reduce global real GDP by 0.4 per cent in 2020.

On the other hand, if confinement measures begin to lift on February 10, the impact on global GDP will be more limited, resulting in a 0.1 per cent reduction in global GDP growth in 2020 and 0.4 per cent reduction in China's 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's economy is more vulnerable today than it was in 2003, with productivity and overall economic growth already slowing and the effects of the US-China trade conflict," it said.

China's GDP has risen dramatically since SARS and its impact on the world economy is much larger now.

"The slowdown in Chinese growth may be a significant drag on global growth. In 2002, China contributed 23 per cent of world GDP growth, in 2019 China contributed an estimated 38 per cent of world growth," IHS said.

The 11 Chinese provinces which have announced an extended holiday period are normally responsible for over two-third of vehicle production in China, with projected crisis-induced first quarter production loss of around 350,000 units if they are idled until February 10, 2020.

If the situation lingers into mid-March, and plants in adjacent provinces are also idled, 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 predicted potential lost production of more than 1.7 million units for the first quarter, or about 32.3 per cent decline from its pre-crisis expectations.

In 2019, China's oil demand was 13.9 million barrels per day or 14 per cent of world market as compared to 5.6 million bpd in 2003 which equated to 7 per cent of world demand.

"China accounted for half of world oil demand growth in 2019. In 2003 China accounted for one third of world oil demand growth," IHS said.

Mainland China is now the second-largest importer in the world, accounting for 10.4 per cent of the world's goods imports, compared with 4 per cent of the world's imports in 2002.