China and Singapore might be looking at a technical recession by the third quarter of the year if the COVID-19 outbreak continues to rage well into the second quarter.
Economists contend the first quarter GDP numbers for both China (where Covid-19 originated) and Singapore (which has the second largest number of COVID-19 cases at 72 outside China) will come out lower year-on-year due to the significant economic impact of COVID-19. They agree Covid-19 will depress productivity while the week-long no-work extension after the end of the Chinese New Year has already caused billions of dollars in lost revenues.
Hundreds of millions of employees throughout China will troop back to work Monday (February 17). China's health authorities warn the massive influx of people on the country's trains, buses, offices and business firms might dramatically boost the number of COVID-19 infections -- and further damage economic growth this year.
The casualty count from the coronavirus is already disconcerting. As of 3:02 a.m., Sunday, Hong Kong time, the official toll from COVID-19 worldwide stands at 69,031 confirmed cases (of which 68,336 are in mainland China) with 1,666 deaths (of which 1,662 are in mainland China). China's National Health Commission (NHC) reports 8,142 people have recovered from the disease.
Economists are already warning of a potential technical recession in China as productivity across much of the country has ground to a halt, said CNBC. Factories and businesses stayed closed last week and the government has told people to keep staying at home. The 20 Chinese provinces still under COVID-19 lockdown accounted for more than 80% of China's GDP in 2019.
Independent Swiss banking firm the Lombard Odier Group has dramatically slashed its forecast for China's first quarter GDP "from just under 6% year-on-year to 3.9%, with an actual contraction quarter-on-quarter given the enormous loss of working hours."
Lombard Odier also estimates the economic impact on China "will be huge in the first quarter of 2020." It noted it will be some weeks before the effects of Covid-19 and subsequent containment measures will be reflected in real economic data.
"But it does not take complex models to predict that the country will not be able to generate much output in the first quarter." it said in a report.
Singpore is also faced with the same dramatic economic slowdown. Prime Minister Lee Hsien Loong isn't dismissing the possibility of a recession in Singapore.
"I cannot say whether we will have a recession or not," he said on Friday about the likelihood of a recession. "It is possible, but definitely our economy will take a hit."
He said the impact of COVID-19 on the region "will be significant, at least in the next couple of quarters," given greater linkages between economies and China's larger role now compared to the SARS crisis.
Singaporean economists said they're betting on a recovery after the first quarter, but also don't rule out a technical recession, which refers to two consecutive quarter-on-quarter contractions.
"For the moment we are all hopeful that it is just a sharp fall in Q1," said Song Seng Wun, an economist at CIMB Private Banking.
Song noted a technical recession, or even a full-year contraction, "is possible if the outbreak is not contained in the first half of the year, and the impact broadens to all key goods and services industries."
