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S&P lowers China's 2020 GDP growth forecast to 5% amid coronavirus threat

S&P Global Ratings lowered its forecast for China's 2020 GDP growth to 5.0% from the initially projected 5.7% on the back of the new coronavirus outbreak that has already killed over 600 people.

"China accounts for one-third of global growth so a 1-percentage-point slowdown in the country's growth rate is likely to have a material effect on global growth," the rating agency said in a report.

Most of the outbreak's impact on the Chinese economy will be felt in the first quarter, said Shaun Roache, Asia-Pacific chief economist for S&P Global Ratings. A firm recovery may only take hold in the third quarter.

S&P Global Ratings expects the outbreak to be contained by March. If the number of reported cases peaks in February, the country's economy could grow by 5.5%, but if it peaks in April, GDP growth could come up to only 4.4%.

"If the virus cannot be contained, a material risk, the economic impact could develop exponentially with significant credit implications," the agency said.

Travel restrictions that directly impact economic activity in China could be unwound gradually in the second quarter, S&P Global Ratings said. Household consumption, especially on discretionary goods and services, will be significantly impacted as citizens avoid public spaces.

The rating agency expects the Chinese economy to grow by 6.4% in 2021, compared to its previous forecast of 5.6%.

"This growth path would bring GDP almost back to the same level it would have reached in the absence of the virus by the end of 2021," S&P Global Ratings said.

Moody's said earlier that China's close connection to the rest of the global economy and its growing dependence on consumption mean that the rapidly spreading coronavirus may weaken domestic spending and adversely affect foreign businesses that depend on the country's consumer demand.

Fitch Ratings, meanwhile, said the scale of the outbreak's impact on Chinese economic growth remains uncertain and will depend on its duration and intensity.