Emerging Markets
Nomura Slashes China's GDP Growth Forecast

The growth forecast cut is sharp even on a "base case" scenario where the lockdown on Chinese cities eases by the end of February. In even harsher situations, the GDP drop will be even more severe.
Japanese banking giant Nomura reckons that the
coronavirus outbreak will push down Chinese growth domestic
product growth in the fourth quarter of this year to 3.0 per cent
on an annualised basis, slumping from 6.0 per cent in the
previous quarter.
It is too early to know if the slump in growth will rebound later
this year to resemble a “V-shaped” line on a graph, or possibly a
“U-shape” with a longer period when growth is on the floor, the
bank said in a note yesterday.
The bank’s economists give a 40 per cent chance to its base case
outcome, with significant room left for other scenarios, such as
a longer lockdown to Chinese cities. Already, millions of Chinese
citizens’ ability to move around is heavily restricted in the
Communist state.
The “base case” means that lockdown measures could run until the
end of February, and virus cases are mainly limited to China.
Under a “bad” situation, the lockdown runs to the middle of
April, taking Chinese Q1 gross domestic product growth down to 1
per cent. In this case, the virus still remains mainly in China.
The “severe” outcome puts the lockdown lasting until the middle
of June, and virus cases accelerate abroad and by March are
similar in scale, relative to population, spreading fear. In this
case, growth in Q1 crashes to 0.5 per cent.
The bank notes that there are two main ways in which the virus
affects the rest of the world: indirect effects from the supply
and demand disruptionis in China’s economy. China’s economy is
more important for the world than it was at the time of the 2003
SARS outbreak – it is the world’s largest commodities consumer
and a manufacturing hub for much of the world. As far as direct
effects are concerned, foreign nations could take far more
drastic steps to shut down borders and interactions with China.
This could happen if infections outside China rise
exponentially.
Ranked by a number of tests, such as export linkages and
commodity exports, Hong Kong has a total economic exposure score
of 112.9. (To estimate the overall economic exposure, the bank
first normalised the values of each of the eight factors across
countries, by calculating Z-scores. It then summed up the eight
Z-scores for each country and added 100.) In second place comes
Thailand, at 106.9, followed by Singapore, at 106.3. At the
bottom is the US, at 95.3.
Normura warns that even if the base case does come to pass, “do
not underestimate the severe damage that has been done to China’s
economy”, it said.