Macro Analysis /
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Pakistan strategy: Coronavirus less negative for Pakistan than APAC

    Intermarket Securities
    25 February 2020

    Coronavirus - An extended crisis will be less negative for Pakistan than for the APAC region 

    According to the World Health Organization (WHO), the novel coronavirus COVID-19 has spread across 28 countries beyond China, claiming almost 80,000 cases and nearly 2,500 deaths in total (mostly in China). The outbreak has recently accelerated with many cases erupting in South Korea, Italy (Europe) and Iran. Global stock markets have reacted; in yesterday’s session, the MSCI World and EM indices shed c.3%, while the Pakistan market also lost 2.8%. 

    Several countries – including the US, Europe and major Asian countries – have placed travel restrictions on people coming from China. As China is at the heart of many industrial supply chains, the main threat is that global trade with the country would be severely affected, if the crisis escalates for an extended period (beyond six months). As such, many countries could face shortages of key industrial inputs and finished retail goods. According to the IMF, the impact should be relatively minor and short-lived for the global economy, but risks stem from continued spread of the virus.

    As a comparison, the SARS outbreak emerged in Guangdong, China in November 2002 and claimed about 800 lives in 8 months (8,000 cases across 26 countries). The outbreak was ultimately quenched by July 2003 (WHO), when the human-to-human transmission came to an end. The novel coronavirus has spread much faster than SARS did.

    From Pakistan’s standpoint, this is an important global risk which has arisen at a time when it is relying on external flows to stabilize a fragile economy. Before we dwell on the risks to Pakistan, it is worth highlighting that its economy is less interlinked with regional economies (majorly imports from China, which can be substituted); while the Tourism sector (a key victim of the outbreak globally) has comparatively much less contribution to its GDP. Also, most industries, which are directly exposed to the risk of an extended outbreak are well stocked with inventory for about three months.