As the world’s health authorities grapple to contain the novel coronavirus, fear is mounting that the outbreak could dent global growth for 2020 as China struggles to restore normal economic activity.
The outbreak, which was first detected in Wuhan, China, has since spread to other parts of Asia, as well as the Middle East, the Americas, Europe and Africa, and more than 85,000 cases had been reported by Sunday.
The rapid spread of the coronavirus has forced some governments to seal off entire towns and cities, stalling economic activity.
Analysts are now forecasting that the epidemic will cut Chinese GDP growth for 2020 by two percentage points, which is expected to reverberate around the world.
The IMF has forecast that the outbreak could affect global growth by 0.1%.
Countries such as SA, which do not have the space to provide fiscal stimulus to their economies, will be the worst affected. SA, which has been unable to get growth going over the past decade, had forecast growth of 0.9% for 2020 prior to the outbreak.
Speaking last week at a briefing on the budget, SA Reserve Bank governor Lesetja Kganyago warned that global forecasts had not yet factored in the effect of the outbreak.
Following the G-20 meetings of finance ministers and central bank governors, Kganyago said "preliminary estimates are that between 0.25% and 0.75% points could be shaved off global growth if it was contained at the epicentre, but if spread beyond that, the impact would be greater".
Edward Glossop, emerging-markets economist at Capital Economics, forecast at the weekend that China’s economy will contract 25% on an annualised basis in the first quarter of 2020 compared to the same period in 2019.
Glossop said the full-year growth forecast was revised down from 5% to 3%.
This is despite efforts by China to increase stimulus measures in a bid to curb the economic effects of the virus.
Glossop said some large emerging markets, such as SA and Brazil, had "little scope" for more stimulus and were likely to be hardest hit.
Local markets could be set for a rocky few weeks as investor fears about the economic effect of the virus saw the JSE conclude its worst week in over 21 years on Friday and caused a bloodbath across
global markets.
Concern that the coronavirus will soon be labelled as a pandemic pushed the JSE all share down more than 10% by Friday, while the rand capped a full week of declines.
FXTM senior market researcher Lukman Otunuga said: "Uncertainty is poised to reign over the coming weeks, ultimately hitting financial markets. This fear of the unknown and mounting caution has the ability to cripple appetite for risk, with investors turning to safe-haven assets like gold, the Japanese yen and dollar."
Otunuga said global markets might, however, "attempt to stabilise" should the number of new cases decline.
Avior Capital’s Warwick Bam said the interruption of business activity, including supply chain restrictions, travel restrictions or manufacturing closures, would have a ripple effect on corporate profits for many industries.
"The two-week incubation period of the virus combined with extreme contagion raises fear levels for an exponential growth in cases and a material change in consumer behaviour.
"The most vulnerable segments will be small and medium-sized businesses without contingency plans if sales are interrupted for more than a few months.
"The travel industry will feel an immediate impact as commuters cancel business and vacation plans over the next few weeks," he said.
Of the more than 200 South Africans based in the Wuhan area, 151 have said they wish to return to SA, after being under quarantine in the city since January, health minister Zweli Mkhize said at a briefing on Sunday.
The minister said the repatriation process would be carried out by the SA military, the department of international relations and co-operation and Chinese authorities in three phases: evacuation, quarantine and re-unification.
With Luyolo Mkentane and Carol Paton
Correction: March 2
An earlier version of this article quoted Edward Glossop, emerging-markets economist at Capital Economics, as saying that Chinese GDP in the first quarter would shrink by 2%. In fact he said it would contract by 25% on an annualised basis.
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