Coronavirus: IMF chief warns on need for early action as Chinese economy slows

'Immediate impact is obvious with travel, tourism and manufacturing in China and beyond that in Asia being impacted', says Kristalina Georgieva, the IMF’s managing director

Phil Thornton
Friday 31 January 2020 11:54
Streets of the Chinese city of Wuhan at the centre of the outbreak are almost deserted
Streets of the Chinese city of Wuhan at the centre of the outbreak are almost deserted

China’s economy will be hit by the fall-out from the spread of the coronavirus in the first quarter of this year, the head of the International Monetary Fund said as she urged policymakers to ensure that taking swift action against crisis was in their “bloodstream”.

Kristalina Georgieva, the IMF’s managing director, said it was too early to say whether the impact of the virus would follow the same pattern as the SARS outbreak two decades ago when a slowdown was followed by a sharp rebound.

“Over the course of the whole year [growth] evened up. It is very hard to predict whether this would be the case now as this is a very different type of epidemic,” she told the Center for Global Development in Washington.

“The immediate impact is obvious with travel, tourism and manufacturing in China and beyond that in Asia being impacted. For this quarter, very likely there would be some negative impact. What would happen beyond this quarter will have to assess.”

Her comments came as figures from the Chinese government showed that growth in China’s factory activity ground to a halt in January as export orders fell even before the coronavirus took hold in the country.

The Purchasing Managers’ Index (PMI) fell to 50.0 in January from 50.2 in December, China’s National Bureau of Statistics said. The reading was in line with analysts’ forecasts that it would hit the neutral 50-point mark that separates growth from contraction.

New export orders slipped back after rising for the first time in over a year in December. However, the survey was conducted before January 20, the day the world receiving reported numbers of cases of the virus. “So this will be seen as largely meaningless,” said Jim Reid, global head of credit research at Deutsche Bank.

There have been 213 confirmed deaths (up from 170 on Thursday) while the number of confirmed cases stands at 9,692 (up from 7,783). The number of confirmed cases has now topped the official recordings of 8,096 cases in the SARS epidemic.

Deutsche’s China economists believe the turning point is not far away, and that assuming the measures taken are effective at containing the outbreak, the peak of new cases outside Hubei province — where Wuhan is located — will likely happen at some point next week.

There has been growing concern in financial markets that Beijing may have sought to conceal the start and full extent to the virus to contain the risk of panic.

Georgieva said the world was facing more unpredictability whether from pandemics, climate shocks and geopolitical tensions. “Preparedness, prevention and early action have to be in the bloodstream of policy makers,” she said.

According to research by ING bank, SARS knocked 1.0 per cent off Chinese GDP back in 2003, but the huge uncertainty around the spread of the coronavirus makes the macro impact very difficult to forecast.

It said that a 1 per cent fall in Chinese growth would mainly hit the Asia-Pacific region with countries such as South Korea, Thailand and Malaysia losing 0.3 percentage points. The impact on the UK would be around just 0.02 per cent.

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