Coronavirus to have larger impact on global economy than Sars outbreak, report claims

It could lead to a 0.8 per cent reduction in global GDP in the first quarter

People walking in a Hong Kong subway station. On Friday, Hong Kong confirmed 25 cases of a new virus that originated in the Chinese province of Hubei. AP

The coronavirus outbreak will have a larger negative effect on the global economy than the Sars outbreak in 2003, said a new report by London-based IHS Markit.

At the time of Sars, China was the sixth largest economy, accounting for only 4.2 per cent of the world’s gross domestic product. Whereas, it is currently the world’s second largest economy, accounting for 16.3 per cent of the world GDP, noted IHS Markit.

“Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe,” it added.

If the current 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.

“It will lead to a reduction of global GDP by 0.8 per cent in the first quarter and 0.5 per cent in the second quarter,” said the report.

The coronavirus outbreak has also prompted dozens of global airlines to cancel flights to China as authorities try to stop the spread of the deadly virus. The death toll from the new virus edged toward 650, with 31,161 confirmed cases.

By July 2003, more than 8,000 people had been infected with Sars, of which around one in 10 died, a far higher mortality rate than for coronavirus.

However, within a year, quarantine and travel bans had halted the spread of Sars. It’s now effectively extinct.

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, said IHS.

“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."

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

If the situation lingers into mid-March, and plants in adjacent provinces are also closed, 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.