Coronavirus Rolls Through Global Economy, Impacts World Industry

(February 21, 2020) — The coronavirus will have a larger negative effect on the global economy than the SARS outbreak in 2003, writes IHS Markit. At the time of SARS, China was the sixth-largest economy, accounting for only 4.2% of world GDP. China is now the world’s second-largest economy and represents 16.3% of international GDP. Therefore, any slowdown in the Chinese economy sends not ripples, but waves across the globe.
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The London-based market intelligence provider notes that the coronavirus has brought large parts of the world’s second-largest economy to a standstill and the impact is being felt across industries, including energy. If the current and unprecedented confinement measures in China stay in place until the end of this month, and are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8% in the first quarter and 0.5% in the second.

In this scenario, the coronavirus and resulting measures will reduce global real GDP by 0.4% this year. Conversely, IHS Markit expects the lifting of confinement measures to add 0.4% to global real GDP in 2021, as the release in pent-up demand filters through the economy. For an early lifting, the effects of the virus are seen as being most pronounced in household consumption and are somewhat mitigated in the industrial sector because factories are seasonally idle during January and February in China for New Year and Spring Festival holiday observances. Nevertheless, in many ways China’s economy is more vulnerable today than it was in 2003, with productivity and overall economic growth already slowing and with the effects of the U.S.-China trade conflict.

Observed is that Mainland China’s GDP has risen dramatically since SARS, therefore its impact on the world economy is also much larger than during the previous outbreak. A slowdown in Chinese growth may be a significant drag on global growth. In 2002, China contributed 23% of world GDP growth. In 2019, the country contributed an estimated 38%.

Further, China’s share of global manufacturing climbed from 6.7% in 2002 to 30.5% in 2019. Over the same period, its share of world high-tech goods rose from 7.2% to 26.3%. Manufacturing now accounts for 29.3% of China’s economy, up marginally from 27.1% in 2002.

Regarding oil consumption and trade, in 2019 China’s oil demand was 13.9 MMbbld, or 14% of the world market versus 5.6 MMbbld in 2003, which equated to 7% of world demand. China accounted for half of world oil demand growth in 2019. In 2003, the nation accounted for one-third. Mainland China is now the second-largest importer in the world, accounting for 10.4% of the world’s goods imports, compared with 4% of the world’s imports in 2002. China is also the number one importer of LPG in the world, followed by India and Japan.

China’s LPG imports rose 8.5% year on year to 20.61 million metric tons (MT) in 2019, reports S&P Global Platts. One metric ton equals 521 gallons of propane or 453 gallons of normal butane. LPG often refers to mixed cargos of various composition, evenly split or at various other percentages. These require intermediate conversion factors based on composition.

Market participants attribute the rise to increased demand from propane dehydrogenation, or PDH, plants, due to new plant startups and an increase in operating rates amid healthy processing margins. China imported 14.91 million MT of propane in 2019, up 10.8%, or 1.45 million MT from 2018. Meanwhile, butane imports rose 3.7% year on year to 5.56 million MT in 2019, customs data show. The United Arab Emirates remained the top supplier of LPG to China, followed by Qatar and Kuwait.

(SOURCE: The Weekly Propane Newsletter, February 24, 2020. Available by subscription)