The Malaysian Insight

ASIAN economies, including Malaysia, will be hit hard if the 2019 novel coronavirus epidemic lasts more than three months, said experts.

It has been six weeks since the outbreak began in the Chinese city of Wuhan. The virus has infected more than 34,000 people and killed some 700, most of them in China – the largest trading partner of many Asian countries.

Economist Soon Hoh Sing told The Malaysian Insight that Japan, South Korea, Taiwan, Hong Kong, the Philippines, Singapore, Malaysia and Thailand are expected to be affected if the outbreak lasts more than three months.

Demand for Chinese exports will slow down if the world’s second-largest economy experiences a downturn due to the virus.

China has a high share of private consumption, hence, an economic slide will slow demand for goods and services. Consumer spending, the largest driver of its economic growth, accounted for 76.2% of its gross domestic product growth in 2018.

The absence of Chinese citizens’ spending power will also be felt in Asian nations that are popular tourism destinations.

For Malaysia, the reduction in Chinese visitors due to the temporary suspension of visas will impact its tourism, catering and retail sectors.

“The tourism industry will be affected. Most tourists are from China, not the US. The Chinese have strong purchasing power,” said Soon.

If the epidemic persists, he said, Beijing might resort to foreign exchange control measures to prevent the weakening of the renminbi.

“This is a possibility, and will have a great impact on neighbouring countries. Therefore, I hope a vaccine will be found for the virus and the situation brought under control. Otherwise, the consequence will be bad.”

He said the outbreak and fears of infection will impact locals’ consumption patterns.

“People might not frequent shopping malls, cinemas and crowded places. I believe everyone will go out less, so this will have an impact on the retail industry.”

Philip Capital chief strategist Phua Lee Kerk predicts that China’s GDP will fall below 4% if the situation does not normalise within a year.

The country recorded a full-year GDP growth of 6.1% for 2019, its slowest growth since 1990.

However, Phua foresees the period of “economic pain” to end by April or May.

It is worth noting that China and the US entered the first phase of a trade deal on January 15, pausing their long-standing trade feud.

Phua expects a gradual recovery of economic activities by April or May, after the lockdown imposed to contain the virus is lifted and winter passes.

“According to previous patterns, pneumonia infections are more rampant in winter. And, they subside as the months go by.”

As long as the virus’ spread is contained, and once the peak period for infections is over after mid-February, the economy will recover, he said.

“The tourism and related industries will be the first to take a hit, because Chinese tourists are expected to come to Malaysia and stimulate the economy. The epidemic was unexpected.”

The manufacturing industry, on the other hand, will not be affected as much as it had likely prepared its stockpiles for Chinese New Year, which coincided with the outbreak.

“Wuhan is a hub for the automotive industry. Hence, the global automotive supply chain may also be affected,” said Phua.

He added that the current outbreak cannot be compared to the severe acute respiratory syndrome (SARS) crisis in 2003.

“At the time of the SARS epidemic, China’s economy was not so big. But now, it is ranked second in the world and it has greater importance.”

Soon concurred, saying the Chinese economy today is completely different than what it was in 2003. – February 8, 2020.