Analysis of big data by Chinese scientists shows the Covid-19 outbreak in the country should be fading between end-February and early March, which would limit the fallout of the coronavirus epidemic in the world’s second-largest economy in terms of lost output to the first quarter.
That would be in line with current expectations. These include more assertive measures by the government to ensure growth in the rest of the year rebounds strongly enough to offset the Q1 output losses. Such measures would also allow Beijing to leave its implicit growth target of 6% year-on-year in place for 2020.
Continued government support would represent a benign backdrop for risk assets.
Calculating the trend in the number of infections
The Chinese scientists used a calculation called Reproduction Number (RO) for their analysis. The value refers to the average number of people a virus carrier will infect on a weekly basis. If a carrier comes into contact with 30 people in a week, and three are infected, the RO is 3.
The higher the value, the more infections a carrier causes; and vice versa. A decreasing RO means the outbreak is fading with the number of infection cases falling. Therefore, what matters is the trend.
The calculation defines:
- RO > 1 => increasing infections, i.e. the outbreak is accelerating
- RO = 1 => stable infections, i.e. the outbreak is continuing but stable
- RO < 1 => decreasing infections, i.e. the outbreak is subsiding, situation improving.
The scientists found that:
- The RO values in all cities and regions, including the epicentre in Wuhan City of Hubei province, had declined since early February; Shanghai was the exception – RO rose slightly from 0.46 on 10 February to 0.57 on 17 February.
- The RO value for the whole country had fallen from 0.69 to 0.36 as of 17 February.
More cases as workers return?
The big question in coming days is the return of workers to work after the extended New Year holiday. Travel, and contact, will pick up and hence the probability of the RO value rebounding.
Given the draconian containment measures implemented, the scientists believe that the outbreak would likely remain under control.
Their research forecasts that the outbreak would fade between 29 February and 20 March, varying from city to city and region to region. The majority of the country is expected to be going back to normal by early March.
Growth: a steep dip and then an equally steep bounce?
If this projection is correct, economic growth could show a V-shaped swing this year. However, as I have noted, the normalisation of output after Covid-19 is still uncertain. The economy might linger in the doldrums for longer, causing the dip-to-recovery pattern to turn into a U and putting the full-year target of 6% growth at risk.
So, if Beijing does not change its – implicit – target for this year, it will likely have to come up with more emphatically pro-growth measures. These would likely still be selective rather than economy-wide. Any measures would be supportive of risk assets, though.
More clarity by mid-March?
We will not know if there are any changes to the growth target until the National People’s Congress sits. However, this has been postponed due to the coronavirus outbreak, with no firm new dates announced yet.
The development of the outbreak in the next three weeks will be crucial for China’s economic outlook.
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