Sizzle Fizzle: Virus May Weaken Chinas Economic Growth

Its the unforeseen events that send economies into rough patches, toward slowing growth andeven into decline.

And while were not speculating that an economy that grows 6 percent a year should suddenly find itself in the red, in China, the recent spreading of the coronavirus (commonly known as the Wuhan virus) may have an impact that lingers beyond the outbreak.

In the latest spate of news, the Chinese government has ordered travel agencies to suspend domestic and international tours. There have also been transportation curbs imposed on cities that are home to an estimated 40 million people.Shanghai Disneyland has been shuttered indefinitely and movie houses have canceled screenings.

In other words, social life is coming to a standstill.Among the ripple effects are that, especially with the limits on Chinese tourism, wallets snap shut. Its been well-reported that Chinese consumers buy roughly a third of luxury goods, and many do so while traveling.

And while we are quick to note that health crises are more important than dollars and yuan, the timing may be rough for the firms and, on a larger stage, the foreign markets that depend on the Chinese consumer for top- and bottom-line torque.

The Lunar New Year this weekend will, of course, be a muted event, where consumers had been predicted to spend more than $150 billion. Retailers such as Gucci and Nike had released new advertising campaigns and merchandise in anticipation of a spending deluge. McDonalds has halted operations in a number of cities amid the outbreak.

And theres another impact as a result of the virus.Wuhan itself is a central point of transport and industrial production for the country, and the flow of commerce will be affected.

As reported by the Economist Intelligence Unit and relayed in the South China Morning Post, the Wuhan virus could hit Chinas economic growth by 50 basis points to a full percentage point.Should a full-blown epidemic ensue, the ripple effects will have waves far beyond Chinas borders.


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