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Danske Bank A/S S.A. Oddział w Polsce: Research China: Uncertainty on the rise on the backof coronavirus
27-01-2020- With the spread of the coronavirus,uncertainty isincreasingfor the Chinese economy and thus the global economyand financial markets. The brewing Chinese recoveryislikely to take a hit in the short termand GDP could be reduced by up to one percentage point in H1.
- The virus is at an early stage and it is difficultto judgehow much it canspreadbefore it gets under control.On the positive side,the government response has been faster and more drastic measures have beentaken to contain the virus compared to the SARS epidemic in 2002-03.
- On the other hand, the virus seems more contagious than SARS and China’s transport system is significantly wider today. The Chinese New Year holiday that started last week poses a heightened risk of contagion. The economic impact is likely to be bigger this time as the service economy is a much higher share (54%) of the economy today compared with the 2002-03SARS outbreak(42%).
- The Chinese economy is also a much bigger driver of global growth. A mitigating factor is that mainly the service sector should be hit, where the import content is small. However, retail sales could also suffer, which could hurt importsand inflation could see another push higher from reduced production in Hubel.
- The SARS epidemic lasted 3-4 months but it is hard to say if this is any guide. While the government response is faster, the new virus seems to be spreading faster. It is too early to judge when it will get under control.
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