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China’s GDP growth is expected to moderate to 4-4.5 per cent in March, the lowest since the 2008 global financial crisis, due to the coronavirus outbreak. The impact of slowdown in China is expected to reverberate across the world, and hit the supply chain across various sectors.
The impact of COVID-19 likely to be higher than SARS 2003, as the number of people affected is higher, and China is more closely linked to the global supply chain now than in 2003, said a HDFC Bank's Treasury Research report “Assessing the impact of the COVID-19”.
Mixed bag for India
India and China are major trading partners, and the export and import activity between both the countries is likely come down. The expected decline in input imports, such as in the pharmaceuticals, auto and electronics sectors, could affect India’s domestic production downstream.
On the positive side, India is relatively insulated from the virus, and could emerge as an alternative global sourcing base for a number of commodities such as textiles, furniture, etc.
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Asks govts, central banks to take steps to soften the blowIndia’s trade relations with China were not affected much during the SARS outbreak, as the total trade with China then stood at a mere $4.8 billion in FY03, accounting for just 4.2 per cent of India’s total trade.
Both exports and imports share from China increased after the SARS outbreak, and touched $87.1 billion or 10.3 per cent of total trade last fiscal, said Abheek Barua, Chief Economist, HDFC Bank.
India imports goods worth $70.3 billion, or 14 per cent of its total shipments, from China.
On the other hand, China is the third largest market for India’s merchandise goods at $16 billion, accounting for 5.1 per cent of domestic exports. The trade deficit between both countries works out to 53 per cent.
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Businesses that depend on international travel and procurement face uncertaintyAbout 72 per cent of India ore exports are shipped to China, besides commodities like organic chemicals and cotton are likely to face disruption, if the coronavirus outbreak continues for an extended period.
Global worry
Though the number of cases have started declining in China, it is rising globally, stoking major concern.
Chinese companies have resumed production activity on a lower scale due to logistics and staffing issues. Growth is expected to revive slowly from June quarter.
However, China’s expected growth this year is expected to be below 6 per cent, though monetary and fiscal stimulus limit the downside growth risk.
Economic activity in emerging markets and European countries, especially that of Germany, are likely to be hit.
Countries that export to China such as Brazil, South Africa, Taiwan, Hong Kong, Germany and those that import intermediate goods such as South Korea, Malaysia and Thailand may come under fire.
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