CORRECTS MR. KATO'S COMPANY TO INTEC - Wearing surgical masks, Takeo Aoyama, center left, an employee at Nippon Steel Corp.’s subsidiary in Wuhan, China, and Takayuki Kato, center right, an employee at an information and communications technology company Intec, speak to journalists after returning home by a Japanese chartered plane at Haneda international airport in Tokyo Wednesday, Jan. 29, 2020. Japan on Wednesday began evacuating their citizens from the Chinese city hardest-hit by an outbreak of a new virus. Aoyama said more than 400 Japanese people wishing to return to Japan are in Wuhan. (AP Photo/Haruka Nuga)
CORRECTS MR. KATO'S COMPANY TO INTEC - Wearing surgical masks, Takeo Aoyama, center left, an employee at Nippon Steel Corp.’s subsidiary in Wuhan, China, and Takayuki Kato, center right, an employee at an information and communications technology company Intec, speak to journalists after returning home by a Japanese chartered plane at Haneda international airport in Tokyo Wednesday, Jan. 29, 2020. Japan on Wednesday began evacuating their citizens from the Chinese city hardest-hit by an outbreak of a new virus. Aoyama said more than 400 Japanese people wishing to return to Japan are in Wuhan. (AP Photo/Haruka Nuga)

Virus blow to China’s economy to be worse than SARS, Nomura says

By Malcolm Scott Time of article published Jan 29, 2020

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INTERNATIONAL - As the economic dislocation caused by the coronavirus and China’s efforts to stem its spread becomes clearer, Nomura International Ltd. now expects the blow to growth could exceed that seen during the SARS outbreak of 2003.

Real GDP growth in the first quarter could “materially drop” from the 6% pace in the fourth quarter, maybe by even more than the 2 percentage point deceleration seen in the second quarter of 2003 from the first, Nomura economists led by Lu Ting wrote in a report to clients.

Nomura expects policy makers will provide liquidity and credit support, especially to business owners severely hit by the pandemic.

“RRR cuts, rate cuts, various lending facilities, and open market operations all are possible options,” the economists wrote. “However, it seems unlikely that these measures would turn the economy around, as the virus outbreak may further weaken domestic demand and thus render the upcoming policy easing less effective.”

The spread of the virus, and the travel restrictions it is prompting around the world, is set to ripple through the global economy too as Chinese tourists stay home and supply chains are interrupted. That threatens to derail a fragile stabilization in the world economy, which had appeared poised to benefit from the phase one U.S.-China trade deal, and signs of a tech turnaround.

Wuhan is taking the biggest economic hit. The city of 11 million has been locked down in a bid to stem the spread of the virus, leaving roads empty and millions of people isolated and idle.

People wearing face masks walk on a street in Nara, western Japan, Wednesday, Jan. 29, 2020. Japan's health officials on Tuesday said that it has confirmed what could be the first human-to-human infection in the country. The first suspected person-to-person infection involves a male patient in his 60s from Nara, who has not traveled to Wuhan. The man, however, is a tour bus driver who served two groups of Chinese tourists from Wuhan from Jan. 8-16. (Nobuki Ito/Kyodo News via AP)

The $214 billion economy makes up about 1.6% of national GDP. It’s a vital logistics, auto and steel manufacturing hub in the center of China, magnifying the impact of disruptions to travel and production there.

Shanghai, Zhejiang, Jiangsu, Guangdong and Chongqing -- all in China’s manufacturing centers -- forbade almost all companies in those regions from resuming operations before Feb. 9, Nomura noted, underscoring the coming blow to industrial production.

Still, it may prove to be a temporary shock to demand and supply, with a “V-shape recovery” due to pent-up demand and production following potential containment of the virus, the Nomura economists said.

BLOOMBERG 

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