WTO warns Sars could halt revival of international trade

The outbreak of the deadly Sars (severe acute respiratory syndrome) virus could put the brakes on a revival in world trade, the World Trade Organisation warned yesterday.

The WTO said a major blow to China's economy from Sars would have serious worldwide repercussions. Its warning came as JP Morgan, the blue-chip Wall Street investment bank, became the latest institution to slash its forecasts for the fast-growing Chinese economy.

"China has become a big motor of international trade," Michael Finger, a WTO economist, said as the body released gloomy forecasts for 2002 and 2003. "If growth in China were dramatically affected by Sars, it would have repercussions for the rest of the world."

The WTO said trade grew 2.5 per cent last year, an improvement from 2001's 1 per cent fall but a fraction of the peak of 12 per cent in 2000. Its annual report said: "The downside risks for 2003 are large, bearing in mind continued sluggishness in the world economy, the conflict in Iraq and the possibility of the continuing spread of Sars."

China is key to world trade as its exports and imports grew by 20 per cent last year, allowing it to usurp the UK as the world's fifth-largest trader.

But the populous nation has become the focus of mounting concern over the virus, which has so far killed at least 251 people, mostly in China and Hong Kong.

Mr Finger said: "The most dramatic impact would be a change in confidence and perspectives and how this translates afterward into investment behaviour. It will be quickly felt throughout the economy. The biggest problem will be if it creates some panic reactions."

Singapore has slashed growth forecasts from 2.5-5.0 per cent to just 0.5-2.0 per cent while Thailand has warned growth could be 1 percentage point lower.

JP Morgan Chase slashed its forecasts for China for the second time in five days. It now expects 2 per cent contraction in the current quarter compared with 0.8 per cent growth five days ago and a pre-Sars forecast of 6.6 per cent.

Joan Zheng, its Asian economist, said: "Over the past few days, the Sars news from China has gone from bad to worse."

She said slumps in consumer spending and exports would force manufacturers to cut stock building and investment.

The central bank of Canada, the Western country so far most affected, yesterday cut growth forecasts to 2.5 from 3 per cent.

The issue has so far not unsettled Western stock markets but analysts said in the wake of the uncertainty over the Iraq war, it could knock confidence.

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