The Wuhan coronavirus is spreading across China, causing disruption, severe illness and even death. In addition to the tragic human cost of an epidemic, widespread disease can cause meaningful macroeconomic damage.
The historical contagion patterns and economic costs of similar infectious diseases allow us to estimate the potential impact of the Wuhan coronavirus on China’s GDP growth.
An Emerging Epidemic
As of January 22, there are more than 500 confirmed cases of the novel coronavirus, or 2019-nCoV, across China, and that figure has been rising rapidly. To date, the virus has caused at least 17 deaths. Additional deaths may have been incorrectly attributed to influenza.
The epicenter of the disease is Wuhan, a city of 11 million in central China and the capital of Hubei Province. The Chinese government has now suspended all travel to and from the city, as well as public transit within it, just days before the Lunar New Year on January 25.
Between January 10 and February 18, Chinese travelers will make an estimated three billion trips in celebration of the Chinese New Year holidays. Such mass migration risks accelerating the person-to-person spread of the virus, which may incubate without symptoms.
The Wuhan coronavirus has drawn comparisons to Severe Acute Respiratory Syndrome (SARS), a particularly lethal strain of coronavirus that caused an epidemic in the same region in 2002–2003. SARS was responsible for nearly 8,100 cases, 774 deaths and estimated economic losses of more than US$40 billion, according to the National Institutes of Health (NIH).
With a mortality rate of 3.1% as of this writing, the newly identified virus does not appear to be as deadly as SARS, which had a mortality rate of 9.6%. In addition, its symptoms tend to be milder. However, SARS’ contagion pattern in China and the known lifecycle of coronaviruses suggest a likely timeline for the current outbreak.
The first case of the Wuhan coronavirus was documented on December 8, 2019. According to University of Göttingen’s Xiaohua Yu, Ph.D., Chair of Agricultural Economics in Developing and Transition Countries, the period between the sickening of patient zero and classification as a major outbreak typically runs 50 days. That puts a sudden increase in cases in late January 2020. Indeed, we’ve recently seen such a surge.
According to Dr. Yu, the epidemic will likely peak about 90 days after the first case, or early March, and should wind down in April and May. Coronaviruses aren’t as communicable in the heat of summer, and the scientific and government communities are working cooperatively to control the contagion and eradicate the disease. The SARS outbreak, for example, lasted about six months and was stopped by July 2003.
Dimensioning the Potential Economic Impact
Though quite necessary, infection-control practices—whether self-imposed precautions or government mandates—typically hurt consumption and retail sales. For example, confinement to one’s home reduces brick-and-mortar shopping, while quarantining a city damages the tourism and transportation industries.
This kind of collateral damage translates into real economic cost. During the 2003 SARS epidemic, China’s GDP growth fell two percentage points between first-quarter growth at 11.1% and second-quarter growth at 9.2%.
We can use this history as a rough guide. Of course, the Wuhan coronavirus is less severe than SARS, and China’s economy is larger today than it was in 2003. We therefore estimate that the current outbreak’s likely impact will range from a 0.8% cut to real GDP if the epidemic is controlled within three months, to a 1.9% cost to GDP if the epidemic lasts nine months.
Most likely, the duration of the outbreak will be something in between. For at least another three to four months, China will have to fight not only the spread of the disease but also the damage it causes to economic growth. We currently anticipate a possible one percentage point cost to real GDP growth. Accordingly, we expect China to ease monetary and fiscal policy even more aggressively to meet its 6% growth target in 2020.
Meanwhile, we continue to monitor the situation closely. The Wuhan coronavirus outbreak is still in its early days, and circumstances are rapidly evolving.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.