UBS releases economic comment on potential implications of Wuhan Pneumonia

Following the information of The World Health Organisation of cases of an unknown pneumonia detected in Wuhan, and the just-confirmed contagion feature of Wuhan pneumonia, market weakness has arisen, according to UBS.

The central government has already escalated measures to curb the spread of Wuhan pneumonia, which as of the week of 20th January 2020 has a mortality rate of 2.1%, UBS has put forward predictions based on the impact of and lessons from SARS in 2003.

Given the similarity of the Wuhan pneumonia and SARS in 2003, suggests UBS, we may learn some lessons from the latter. Mainland China recorded 5,327 cases and Hong Kong saw 1,755 cases of SARS, and the global average mortality rate was 9.6%, much higher than 2.1% for Wuhan pneumonia so far, with little information to go on as to whether the current pneumonia would follow the trajectory of the SARS epidemic.

SARS had a notable impact on Chinese economy in 2003. China’s sequential GDP growth slowed sharply from an estimated >12%q/q saar in Q1 to 3.5% in Q2 2003, according to figures provided in the UBS report. This was mainly due to the hit on tourism and related sectors such as transportation, hotel and catering. However, China’s property sector, fixed asset investment and industrial production were more resilient, according to UBS.

In the words of UBS: History does not repeat itself, but it rhymes. China has learnt lessons from SARS. The government is now working much more proactively and transparently to contain the Wuhan pneumonia than SARS, and China’s public health system is now more experienced than before as well.

The above has been acknowledged alongside the current lower mortality rate of the Wuhan pneumonia compared to SARS. However, says UBS, the ongoing travel peak season is a tremendous challenge, which could complicate the disease diffusion.

If the pneumonia couldn’t be contained in the short term, UBS expects China’s retail sales, tourism, hotel & catering, travel activities likely to be hit, especially in Q1 and early Q2. The Bank states that its forecast of sequential growth rebound in Q1 and Q2 2020 would face some downside risk. The government would likely strengthen its policy easing to offset the shock from the pneumonia, especially for those directly affected sectors, which could help support related activity rebound in later quarters (likely in H2 2020). The Bank expect PBC to keep interbank liquidity ample and guide down market interest rates.