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                                Xinhua Credit
                                China Macro-economy

                                Consumption behavior changes, stronger resilience limit epidemic impact on China's and global economy, experts

                                February 06, 2020


                                Abstract : How will the novel coronavirus (2019-nCov) epidemic impact China's and the global economy? Though concerns over the negative effects arise constantly, experts believe the impact is limited thanks to changes in consumption behaviors and strong resilience of China's economy.

                                BEIJING, Feb. 6 (Xinhua) -- How will the novel coronavirus (2019-nCov) epidemic impact China's and the global economy? Though concerns over the negative effects arise constantly, experts believe the impact is limited thanks to changes in consumption behaviors and strong resilience of China's economy.

                                --Most consumption reduction to be made up later

                                "After the outbreak, some of the consumers' consumption for the holidays was suppressed or even canceled, and this kind of consumption left merchant inventory difficult to sell after the season," said Cao Heping, a professor with School of Economics, Peking University, in a recent interview with China News Service.

                                Judging from consumption in previous years, the consumption during the two weeks of the Spring Festival generally accounts for about 8 percent of the consumption for the whole year. Cao thus estimated the left commercial inventory at around 1 trillion yuan, of which 60 percent can be gradually digested in the future.

                                The impact of a short-term (45-day) outbreak on China's GDP in 2020 would be no more than 0.4 percent if the increase in epidemic prevention production and consumption is taken into consideration, according to Cao.

                                Wei Shangjin, a former chief economist at the Asian Development Bank, wrote in a published article that China is now in the Internet commerce age, with consumers increasingly doing their shopping online, and much of the reduction in offline sales owing to the virus will likely be offset by an increase in online purchases.

                                Most of the vacations canceled today will probably be replaced by future trips, because better-off households have already set aside a holiday travel budget, Wei wrote.

                                -- China's overall economy not to be affected despite temporary injuries to some industries

                                The resilience of China's economy cannot be underestimated amid the epidemic, though it posed direct harm on the service, manufacturing and trade sectors, according to a report released by the Shanghai Institutes for International Studies (SIIS).

                                "Even in the short term, the epidemic has not caused a negative effect on all the sectors but has benefited industries such as electronic commerce and online games and entertainment," said the report.

                                The report made a forecast that in the long run, as China has already been the second-largest economy, the epidemic cannot undermine its huge potential in consumption, urbanization, and such new economic fields as 5G and artificial intelligence.

                                "China has just announced an extension of the holiday period, but many companies will find ways to make up the lost time later in the year. The short-term negative impact is thus likely to be concentrated among restaurants, hotels, and airlines," said Wei.

                                Wei estimated that its effect on Chinese GDP growth rate in 2020 is likely to be small, perhaps a reduction on the order of 1/10 of a one percentage point; the effect in the first quarter of 2020 will be big, perhaps lowering growth by one percentage point on an annualized basis, but this will be substantially offset by above-the-trend growth in the rest of the year.

                                "The direct impact of the outbreak on some sectors of the economy, such as tourism and trunk lines, is significant, but the impact on the annual financial statistics of the other sectors is not large,"  according to Cao.

                                -- Little impact on the global economy

                                Experts agree the coronavirus outbreak's impact on other economies will be even more limited.

                                As a rule of thumb, the negative impact of a decrease in China's GDP growth on the US and European economies is about one-fifth as large in percentage terms, about 0.02 percentage point in this case, Wei said.

                                Cao noted the reduced consumption by the outbreak of the epidemic on the world economy would mainly affect maritime transport and China will import less because of a backlog of products during the Spring Festival.

                                However, due to the epidemic, China is very likely to increase purchase of some products such as medical equipment and supplies, as well as some agricultural products, experts say.

                                (Edited by Yang Qi, [email protected])

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                                Keyword: economy B&R Weekly

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