- China may have a rocky recovery from coronavirus, according to Nomura economist Richard Koo.
- Key parts of the economy that supported recovery after SARS, such as a growing labour force and corporate investment, may be lacking today, he said.
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Much of Wall Street expects China’s economy to bounce back from coronavirus with few long-term consequences, just as it did with SARS in 2003. That’s misguided, according to Nomura analyst Richard Koo.
There are key differences between the Chinese economy now versus when SARS hit, Koo wrote in a Monday note. He said those hindrances will make recovering from coronavirus, the fast-spreading illness that has led Chinese cities to lock down and businesses to temporarily shut their doors, a bigger challenge.
Koo’s note comes as economies and markets across the globe are scrambling to understand what coronavirus will mean for the Chinese economy. Many on Wall Street predict that the effects of the outbreak on the economy will be limited to the near-term, though parts of China’s economy, such as its banking sector, were uniquely vulnerable to downturn before the outbreak.
“I think it is quite possible that the economy’s growth rate for the full year will be substantially lower,” Koo said.
For one, business investment may be down in the middle-term, Koo said. China was teetering on the brink of the “middle income trap,” defined as a period in which a middle-income country’s growth stalls, before the outbreak, he said, adding that trade tensions had pushed labour costs up.
It will also take more time than expected for people to return to work, Koo wrote – adding that the working-age population has been shrinking since 2012, which could undermine productivity.
“All of these key trends were moving in the opposite direction,” during SARS, Koo wrote, adding that then, “the Chinese economy had a great deal of positive momentum. In that sense, I do not think we should expect the kind of rapid recovery seen after that virus outbreak subsided.”