China’s economic growth could fall to 5% or below because of the Coronavirus outbreak, a government economist has said.

The fast spreading outbreak has killed at least 170 and infected more than 7700 across China as of Thursday morning and has already impacted several industries like tourism, entertainment and transportation, including civil aviation, during the ongoing Lunar New Year (LNY) holidays.

“The economic growth rate in the first quarter (in 2020) may be about 1 percentage point lower than the previous forecast. The GDP growth rates (in 2019) were 6.4%, 6.2%, 6.0%, and 6.0% in each quarter respectively. In other words, in 2020, the GDP growth rate in the first quarter may be around 5.0%, and the possibility of less than 5.0% is not ruled out,” Zhang Ming, an economist with one of China’s top think-tanks, the Chinese Academy of Social Sciences (CASS), said in an interview to the Caijing magazine.

Zhang’s was the first analysis by an official think-tank on the impact of the coronavirus outbreak on the country’s economy.

According to Zhang, there were two scenarios on which an economic analysis of the outbreak could be currently based. “Under the optimistic scenario, the peak period of this pneumonia epidemic will be in February 2020; early and mid-term, and by the end of March 2020, the pneumonia epidemic will be basically over. In a pessimistic scenario, the pneumonia epidemic may last until the first half of 2020,” Zhang said, adding that he was basing his take on the “optimistic scenario”.

The industries most affected by the epidemic are the service industries, especially transportation, tourism, catering and entertainment. The combined sales of retail and catering enterprises in China during the week-long LNY holiday in 2019 was 1.01 trillion yuan (about $146 billion), up 8.5% from 2018, according to the figures released by the Chinese commerce ministry last year. It is likely to be much lower this year because of the virus crisis.

Zhang argued that, in fact, the impact of the current epidemic on China’s economy could be “significantly higher” than that of Severe Acute Respiratory Syndrome (SARS) outbreak, which originated in China and killed nearly 800 people globally in 2002 and 2003.

He explained that China, the world’s second-largest economy, is reliant more on services and consumption now than in 2002-03 during the SARS epidemic.

“What’s more noteworthy is that at present, whether it is the proportion of tertiary industry in GDP or final consumption in GDP, the proportions are significantly higher than in 2003.”

To minimise the impact of the slowdown, the government is likely to step up policy support, which could boost the annual budget deficit as a share of GDP to more than 3% in 2020, Zhang said.

He added that the People’s Bank of China, the country’s central bank, could further cut the bank’s reserve requirement ratios and interest rates.

Economic growth could recover later this year, bringing the full-year expansion to 5.7%, Zhang said.

In 2019 growth was 6.1%, the weakest in 29 years.

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