Don’t expect the economic fallout of the novel coronavirus outbreak to be limited to China.
RBC economists warned Friday (January 31) the Canadian economy could take a hit as demand dampens for everything from oil to international travel.
Citing figures from the Bank of Canada, an RBC analysis pointed to SARS-related travel disruptions that subtracted about a half percent of GDP growth from the economy during the second quarter of 2003.
“But most of the drop in travel in Canada at the time came from reduced car traffic from the U.S., not just reduced air traffic from Asia,” economists Nathan Janzen and Claire Fan stated in the report.
The pair highlighted the fact that the Toronto area was the only region outside Asia that the World Health Organization issued a SARS-related travel advisory to.
“At this point, the economic impact of the coronavirus in Canada looks more likely to be limited to a pullback in international air travel along with potentially some disruption to industrial supply chains from the disruption to production in China.”
The analysis estimated GDP growth could be hit by two or three tenths of a percent in the first quarter of this year.
This week Air Canada suspended direct flights to and from China as a result of the outbreak.
“Bilateral Canada-China travel has also increased dramatically since the SARS outbreak. By our count, China accounted for almost seven per cent of non-resident arrivals by air into Canada in 2018, up seven-fold from about one per cent in 2003,” the report said.
While concerns over fuel demand have pushed the price of oil down since the outbreak, RBC said the drop is expected to be temporary.
The economists also forecast the Bank of Canada will cut rates later this year — but not solely because of the coronavirus.
“The negative economic fallout from the coronavirus in Canada will just add to an already soft economic growth backdrop that we think was already putting the BoC in position to cut the policy rate by mid-year.”