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.