The economic damage caused by novel coronovirus to the Chinese economy is likely to be larger than SARS, leading to GDP estimates being revised downwards.
Citigroup has cut China's GDP forecast for the first quarter of 2020 to 3.6% from the initial 4.8%. Citigroup said the economic damage from coronavirus will be more than the SARS virus, assuming that the virus will be contained by the end of March.
"Based on the high frequency data we follow, we revise down our Q1 GDP growth forecast considerably to 3.6% from the initial 4.8% YoY and annual growth modestly to 5.3% from 5.5% YoY," Citigroup said.
"Given the slower recovery of the dominant services sector, we expect GDP growth to remain below 5% YoY in 2020 Q2 before picking up to 6.1% YoY in 2020 H2. This revision also leads to systemic changes in all our major forecasts," it said.
The brokerage has noted that a wider and faster spread of novel coronavirus requires a reassessment of its economic impact. The developments have been worse than anticipated, it said.
The note in its reassessment of the economic impact of coronovirus said that the tipping point is yet to be seen.
"Despite some initial positive signs like the decline of new suspected and confirmed cases, the unknown features of coronavirus such as uncertainties about the incubation period, false negative results in testing and undetected channels for contagion suggest the turning point will be still days, if not weeks, away, not to mention the risk associated with the post-holiday massive transit," the report said.
The coronavirus outbreak has disrupted China's growth path, Citigroup noted. The World Health Organisation (WHO) has declared the coronavirus outbreak a public health emergency of international concern (PHEIC).
The confirmed cases have skyrocketed to over 40,000 as of February 9, and the death toll has exceeded 900, surpassing the SARS level of 774.
The report notes that the measures to contain the virus are more drastic and widespread than in the SARS epidemic. The quarantine requirements are more restrictive and extensive, and more cities and neighbourhoods are locked down this time. Important to note, meeting the Chinese New Year holiday, the coronavirus outbreak delayed the resumption of work by at least nine days nationwide.
A large portion of migrant workers may not return to their working cities until 2020 Q2, which is a shock to production and construction activities. Overall, the government restrictions, transport blockades, extended work holidays and mandatory closures have imposed a significant disruption on the supply chain.