Coronavirus to hit EM growth - Capital Economics
Emerging Markets Economics

Coronavirus to hit EM growth

Emerging Markets Activity Monitor
Written by Darren Aw
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Our Tracker suggests that aggregate EM GDP growth stabilised in Q4, but it will no doubt weaken sharply in Q1. The coronavirus has already dealt a significant blow to China’s economy, and other EMs (mostly in the rest of Asia) will be hit via the impact on supply chains and tourism sectors.

  • Our Tracker suggests that aggregate EM GDP growth stabilised in Q4, but it will no doubt weaken sharply in Q1. The coronavirus has already dealt a significant blow to China’s economy, and other EMs (mostly in the rest of Asia) will be hit via the impact on supply chains and tourism sectors.
  • We estimate that EM GDP growth rebounded from 3.4% y/y in October to 3.7% y/y in November. (See Chart 1.) The turnaround was broad-based. And activity data in December from Central and Eastern Europe, Russia and China suggest that EM growth stabilised in Q4 as a whole.
  • Of course, these data have since been overtaken by events. No one knows how the coronavirus will develop but, at this stage, three points stand out. First, available activity data from China have already collapsed. Passenger transport figures have plummeted. (See Chart 2.) And the government has announced factory closures, which will keep activity depressed in the coming days and weeks.
  • Second, there will be knock-on effects to other EMs, mostly those in Asia. One vulnerable sector is tourism. We estimate that the travel ban by Chinese authorities will reduce outbound tourism by roughly half. Hong Kong, Cambodia and Thailand look set to suffer the largest loss of income, perhaps in the region of 2-3% of their own GDP.
  • China’s factory closures and a drop in its domestic demand will also ripple through supply chains. Value added in China’s final demand is equivalent to 5-10% of GDP in much of Asia (Hong Kong, Malaysia, Singapore, Thailand, Korea and Vietnam), as well as in Chile and Saudi Arabia. And it is equivalent to 13.5% of GDP in Taiwan. (See Chart 3.)
  • Third, the experience of SARS suggests that, if the virus is contained, the disruption will fade and activity in China will rebound. (See Chart 4.) Orders from China would then recover as supply chains are unblocked, although tourism revenues in places such as Thailand and Cambodia – where Q1 is typically the high season – may not be recouped.

Chart 1: Aggregate EM GDP (% y/y)

Chart 2: China Passenger Traffic (person-km, % y/y)

Chart 3: Value Added in Chinese Final Demand
(% of Countries’ own GDP, 2015)

Chart 4: China Activity Proxy & GDP
around SARS (% y/y)

Sources: Refinitiv, CEIC, OECD, Capital Economics


Darren Aw, Asia Economist, +65 6595 5193, darren.aw@capitaleconomics.com