Economic risk from virus vexes policymakers

A rapidly spreading virus outbreak in China is emerging as a potentially major new risk to the global economy, and leaving policymakers, still grappling with the impact of the China-U.S. trade war, fretting over the widening fallout.

The potential effects of the spread of the coronavirus, which has killed 170 in China since its detection early last month, took center stage in U.S. Federal Reserve Chair Jerome Powell’s news conference Wednesday.

“China’s economy is very important in the global economy now, and when China’s economy slows down, we do feel that - not as much, though, as countries that are near China or that trade more actively with China, like some of the Western European countries,” Powell said.

Japanese Prime Minister Shinzo Abe also voiced concern on Thursday over the potential damage to Japan’s economy, which is heavily reliant on China as a production and market base.

“I would like to scrutinize the economic impact, including that from the hit to tourism,” Abe told parliament.

Zhang Ming, an economist at the Chinese Academy of Social Sciences, a top government think tank, projected the outbreak would cut China’s first-quarter growth by 1 percentage point to 5 percent or lower.

China has imposed travel restrictions and shut businesses to contain the outbreak. But that has not quelled rising concerns among companies and governments across the world, some of whom are taking swift action.

A plane of Japanese evacuees from the Chinese city of Wuhan, the epicenter of the outbreak, arrived in Tokyo on Thursday. New Zealand and Indonesia are also preparing to evacuate their citizens.

Airlines including British Airways, United Airlines and Lufthansa are cutting or suspending flights. Starbucks has closed more than half its cafes in China, and Walt Disney shut its resorts and theme parks in Shanghai and Hong Kong.

“Apart from the risk to human lives, it is likely to hit travel and consumption activities. In a scenario of widespread infection, it could materially weaken economic growth and fiscal positions of governments in Asia,” S&P said Thursday.

Asian stocks sank Thursday as the death toll from the virus rose and more cases were reported around the world. Yields on benchmark 10-year U.S. government bonds also hit a three-month low of 1.5600 percent as investors sought the safety of government bonds.

“We expect the risk of potential negative spillovers to domestic tourism in neighboring countries to be higher than during [severe acute respiratory syndrome] SARS because Chinese nationals now make up the largest share of visitors to other Asia-Pacific economies,” Moody’s said Wednesday.

Analysts are comparing the current coronavirus outbreak to the 2002-2003 SARS epidemic, which led to about 800 deaths and slowed Asia’s economic growth.

Many say the impact on global growth could be bigger this time, as China now accounts for a larger share of the world economy.

Reuters