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China’s first-quarter gross domestic product (GDP) growth rate may drop to 5% or even lower due to the coronavirus outbreak, forcing policymakers to introduce more stimulus measures, Zhang Ming, an economist at the Chinese Academy of social sciences – a top government think tank, said on Wednesday, according to Caijing

Zang’s forecast is based on the assumption that the outbreak will peak in early to mid-February and end by the end of March. The dismal growth projections could weigh over risk assets, helping safe havens like gold and yen score gains. 

Key quotes

The fast-spreading virus could cut first-quarter GDP growth by about 1 percentage point. 

Coronavirus’ impact on the economy could be significantly bigger than that of Severe Acute Respiratory Syndrome (SARS), which originated in 2002.

The jobless rate could exceed 5.3% in the coming months, putting pressure on the government to step up policy support, which in turn could boost the annual budget deficit as a share of GDP to over 3% in 2020. 

The People’s Bank of China could further cut banks’ reserve requirement ratios and interest rates.

China’s growth slowed to a near 30-year low of 6% in the fourth quarter of 2019. The growth was expected to pick up with the continued easing of US-China trade tensions. The two nations signed the highly-anticipated phase-one trade deal earlier this month.