- Perret-Green highlighted that at the end of 2002, the Chinese GDP was estimated at around $1.5 trillion, 4% of global GDP.
- By the end of 2019, this was $14.3 trillion and over 16% of global GDP.
- In the aftermath of the SARS outbreak, China was still experiencing rapid growth having just joined the World Trade Organization (WTO).
According to an article published in CNBC news, Chinese officials on Tuesday confirmed that the death toll from the virus, which originated in the city of Wuhan, had reached 106 with 4,515 people infected.
Virus attack may have a negative impact on the market
Perret-Green highlighted that at the end of 2002, the Chinese GDP (gross domestic product) was estimated at around $1.5 trillion, 4% of global GDP. By the end of 2019, this was $14.3 trillion and over 16% of global GDP.
SARS affected around 8,000 people and resulted in nearly 800 fatalities, and was
estimated to have reduced growth in China in 2003 by 1 percentage point while trimming
0.5 percentage point off growth across East Asia.
However, AdMacro Head of Research Patrick Perret-Green told CNBC Tuesday that the
markets were being “far too casual” given the growth of China’s economy since 2003,
along with the increase in its urban population and accessibility of travel.
China on the damage control mode
People were far too casual over coronavirus outbreak, analyst says passenger journeys by air increasing to 660 million from 80 million, he suggested that the cost of shutting down huge cities had not been properly priced in.
“Xinjiang province, 56 million people where enterprises are shut for another week,
Shanghai, 24 million people, Hangzhou is another 11 million people,” Perret-Green said.
“A huge tranche of the urban population is shut down, a huge tranche of business, so a lot
of Chinese companies are just going to have to declare force majeure and shut down
orders.”
The Lehman-type moment tipping point
In a statement issued Monday, Perret-Green said the coronavirus outbreak represented a
“Lehman-type moment tipping point” which could “tip the global economy into effective
recession.”
A key difference between 2003 and now is the size and significance of the Chinese economy within the global picture. It doesn’t seem unreasonable that it could knock at least 1% off China’s growth and 0.5% off global growth, Perret-Green said in a note published Friday.
“Indeed, we believe that it could be much greater than that. Such is China’s
interconnectivity with the global economy. With global growth set to remain weak — the
World Bank is forecasting only 2.5% this year — it’s not inconceivable that China could tip
the global economy into an effective recession.”
Developing Asia recovered at an 11% GDP growth pace after the summer of 2003,
indicating that the negative effects were somewhat short-lived.
Chinese GDP growth benefiting from an investment boom
However, Neil Mackinnon, global macro strategist at VTB Capital, also highlighted that
equity markets had recently recovered from the dotcom bubble and global growth was in a
a post-recession upswing, with Chinese GDP growth benefiting from an investment boom.
In a note Tuesday, Mackinnon said VTB was “wary of good news” and short-term
rebounds in equity markets.
“Now, equity markets, especially in the U.S., are historically overvalued and at record
highs. The ‘Everything Bubble’ has not yet burst and growth rates for the advanced
economies are still comparatively soft a decade or so on from the Great Financial Crisis,”
Misguided information
Mackinnon said consumer and services-led economy, while at the same time it tries to deleverage its high debt-GDP ratio. Mackinnon argued that comparing mortality rates on the basis that the current death toll is relatively small on a percentage basis might be “misguided,” especially given the lockdown of major cities by Chinese authorities.
“The point for equity investors is that the economic and financial risks are tilted to the
the downside, even though everyone rightly hopes that the coronavirus remains a short-term event that is treatable and containable,” he concluded.
Not all analysts are so worried
However, UBS Global Wealth Management Head of Equity and Credit, Hartmut Issel, told CNBC Tuesday that the Swiss lender does not expect the economic blowback to last beyond the first quarter of 2020 despite the hindrance to the production of the now prolonged Lunar New Year holiday.
“We see these kinds of pullbacks, the dips, more as an opportunity, especially in emerging
markets and especially in Asia ex-Japan,” he told CNBC’s “Squawk Box Asia,” adding that
the Chinese government has learned from similar past events and has become more adept
containing the virus.
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Source: CNBCNews
