Via the excellent Wang Tao at UBS:
Lessons from 2003 SARS: >6month cycle, relatively high mortality rate…
There are still many unknown aspects and uncertainties about the Wuhan pneumonia. Given the similarity of the Wuhan pneumonia and SARS in 2003, we may learn some lessons from the latter. The first case of SARS occurred in mid-November 2002 with its outbreak peaking in April and early-May 2003, and it showed some signs of being under control in end-May and June 2003. Mainland China recorded 5,327 cases and Hong Kong saw 1,755 cases of SARS, and the global average mortality rate was 9.6%, much higher than 2.1% for Wuhan pneumonia so far. Whether the current pneumonia would follow the trajectory of >6-month life cycle of SARS is unclear, as the government’s intervention now is much earlier and more proactive than SARS in 2003.
… hit on retail sales & tourism, though impact on GDP short-lived due to policy
SARS had a notable impact on Chinese economy in 2003. China’s sequential GDP growth slowed sharply from an estimated >12%q/q saar in Q1 to 3.5% in Q2 2003 (y/y growth slowed by 2ppts to 9.1%), mainly through the hit on tourism and related sectors such as transportation, hotel and catering (Fig 2/3/7). Overall retail sales slowed sharply from 9.2%y/y in Q1 2003 to 6.8% in Q2 (4.3% in May). Meanwhile, China’s property sector, fixed asset investment and industrial production were more resilient (Fig 4). Property sales grew at 34%y/y, new starts at 28%y/y and investment at 33%y/y in Q2, partly as macro policies stayed accommodative during SARS outbreak. The government provided targeted fiscal policy support for affected sectors in 2003, e.g. waiving some fees for tourism, transport, hotel & catering, etc. China’s monetary and credit policy became even more accommodative, with M2 growth rising further from 18.5% in March 2003 to >20% in May and 21.7% in August 2003 (Fig 5).
What next and what to watch?
History does not repeat itself, but it rhymes. More importantly, China has learnt lessons from SARS. The government is now working much more proactively and transparently to contain the Wuhan pneumonia than SARS, and China’s public health system is now more experienced than before as well. Given the limited information, the mortality rate of Wuhan pneumonia seems notably lower than SARS. However, the ongoing travel peak season is a tremendous challenge, which could complicate the disease diffusion. If the pneumonia couldn’t be contained in the short term, we expect China’s retail sales, tourism, hotel & catering, travel activities likely to be hit, especially in Q1 and early Q2. Our forecast of sequential growth rebound in Q1 and Q2 2020 would face some downside risk. The government would likely strengthen its policy easing to offset the shock from the pneumonia, especially for those directly affected sectors (Fig 6), which could help support related activity rebound in later quarters (likely in H2 2020). We expect PBC to keep interbank liquidity ample and guide down market interest rates, with help of additional 50bps RRR cut and 10-15bps MLF rate cuts.