Authorities will need to break their fiscal rule of a 3% deficit relative to GDP to"slow the downward spiral of economic activities, ” according to Li-Gang Liu at Citigroup Inc. Measures such as cutting interest rates and the proportion of deposits banks must set aside as reserves are possible, said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong.
The hit could exceed that seen during the SARS outbreak of 2003, according to Nomura Holdings Inc. Gross domestic product growth could"materially drop” this quarter from the 6% pace at the end of 2019, maybe even more than the 2 percentage point deceleration seen in the second quarter of 2003, Nomura economists led by Lu Ting wrote in a report to clients. Policy makers will provide liquidity and credit support, especially to business owners severely affected, they said.
Like most economists, the JPMorgan team noted that much depends on China’s ability to contain the spread of the disease. "We are very carefully monitoring the situation, ” Powell said at a press conference Wednesday in Washington after the U.S. central bank held its benchmark interest rate steady.