Fitch Ratings has said that the coronavirus is set to dampen china's economic growth.
Key notes
Ongoing coronavirus outbreak will dampen economic growth in China this year.
Chinese govt were to launch a large-scale stimulus to offset effects of coronavirus, it could have adverse effect on other policy goals.
Still too early to make definitive adjustments to china's GDP forecasts at this stage & instead have examined some illustrative scenarios.
Huge uncertainties remain over impact of coronavirus on china's economy.
China govt only likely launch large-scale stimulus if economic impact of virus proves substantially larger than sars outbreak in 2003.
This follows the prior 30 January 2020 report where it was stated:
- We at Fitch Solutions note the possibility of a revision to our China real GDP growth forecast within a range of 5.4%-5.9% for 2020.
- We do not rule out a downside risk beyond 5.4% as the economy is currently in a weaker position than it was in 2003 and has less policy space to weather the negative shock in the event of an extended and serious epidemic.
- Businesses, especially smaller ones already hit by de-leveraging, may struggle to survive and elevated closures could lead to higher unemployment over the coming months, a situation that would outlast the epidemic even if it were contained relatively quickly.
- We expect more fiscal stimulus to support the economy in order to achieve a very important goal for the Chinese government: 2020 is the deadline for China to double its economy relative to 2010.
- We believe policymaking will continue at full capacity despite cancellations of local political meetings in the run-up to the National People’s Congress typically held in March.
FX implications
It is still risk-on out there despite such warnings. AUD is better bid and the yen has been thrown back towards 110 vs the US dollar. US yields shot higher and US stocks bounced back with a vengeance. Investors are seeing through the initial shock to the world economy and figure that the reports of a breakthrough treatment for the coronavirus — despite scepticism from public health officials — as a cause for optimism, expecting that the deadly outbreak could be stopped before inflicting deeper economic wounds.
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