Sars could reverse China growth

By THIS IS MONEY
Updated:

 

CHINA'S huge economy could shrink by 2% in the second quarter of this year because of the worsening Sars situation and the impact of government moves to curb the spread of the deadly virus, JP Morgan Chase said today.

The warning came as the Hong Kong government unveiled a £1bn relief package to help businesses hit by the killer disease.

JP Morgan Chase last week slashed its second-quarter growth forecast for China from 6.6% to 0.8%, assuming the outbreak of Severe Acute Respiratory Syndrome would be under control by the end of May.

But a new report by the bank said the Sars news from China had gone from bad to worse and the probability was rising that the virus would not be brought under control until late June at the earliest, leading to further revisions of the forecasts.

'In addition, China's decision to shorten the May Day holiday will have a significant impact on economic growth in the second quarter,' JP Morgan Chase economist Joan Zheng said.

Experts fear an abrupt slowdown in China, one of the world's fastest growing economies, could have severe repercussions for the rest of the region.

Thousands of Chinese wearing white masks thronged Beijing's railway stations today, desperate to leave the city as the government ordered schools to close to control the soaring number of Sars cases.

The measures unveiled today by the Hong Kong government dwarf a similar set of moves introduced earlier this month by Asian rival Singapore, which has also been pummelled by Sars.

Hong Kong chief executive Tung Chee-hwa said that the initiative - which was flagged last week - would cushion the blow for the hard-hit tourist, retail and hotels sectors. Economists have said that the outbreak - which has killed close to 300 globally, with a third of that total in Hong Kong - could push the territory's fragile economy back into recession.

Tung said his administration would guarantee up to £287m in short-term loans for flu affected businesses, cut rentals at its properties by between 30% and 50% and pare utility charges.

The government's moves may raise the pressure on private sector landlords to follow suit, exacerbating and already acute deflationary problem in the former colony.

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