China’s economic growth is expected to slow down to 5.3 percent for this year if the novel coronavirus outbreak could be contained by the end of March, AXA Investment Managers predicted on Wednesday.
The shock caused by the COVID-19 epidemic to the nation’s economic growth in the first quarter is already apparent with a forecast of a 4 percent contraction, down 2 percent quarter-on-quarter, said Aidan Yao Yuan, senior emerging Asia economist at AXA.
If daily new infection cases of the coronavirus remain high and the outbreak is not contained by the end of the first half of the year, the fallout will prolong with full-year economic growth at 4.8 percent
Aidan Yao Yuan
senior emerging Asia economist at AXA
These forecasts, however, are based on the assumption of a benign scenario that daily increases of new infection cases will fall to zero by March 31, and production activities will gradually normalize in the second quarter on a pattern akin to that of the SARS epidemic in 2003.
If daily new infection cases of the coronavirus remain high and the outbreak is not contained by the end of the first half of the year, the fallout will prolong with full-year economic growth at 4.8 percent, Yao said.
Chinese authorities have unveiled a host of relief measures to help businesses and the public ride out the financial difficulties arising from the epidemic. The Finance Ministry on Friday allocated an additional 8 billion yuan in a second round of measures to combat the virus, taking the amount so far to 90.15 billion yuan ($12.9 billion).
Yao said it would take some time to assess the effectiveness of these measures. The first phase focuses on containing the virus, while the next phase is expected to shift to economic stimulus packages.
Since people are consuming less and have not returned to work completely, fiscal policies such as tax cuts for small and medium-sized enterprises could support the economy more than monetary measures, Yao said, adding that monetary measures would be more effective after employees are fully back at work.
He does not believe the People’s Bank of China will use the yuan to mitigate the virus impact, noting that central bank intervention has been minimal since the yuan breached the 7 per dollar mark last year. The yuan is expected to hover at around 7 to the greenback by year-end.
Financial markets will be closely monitoring official announcements and reports on further fiscal easing steps, as well as local government support measures and monetary stimuli from the central bank.
The PBOC is expected to announce a cut in the loan prime rate (LPR) – its benchmark for pricing existing floating-rate loans – on Thursday to ease the financial strains on businesses hit by the coronavirus outbreak.
Yao predicts the LPR would be cut by 10 basis points in line with market expectations.
