This month’s edition of the Greater Houston Partnership's Houston: The Economy at a Glance provides insight into the role the coronavirus, the U.S.-China trade agreement, the USMCA, Brexit, interest rates, and OPEC will have on Houston's future growth.
Houston: The Economy at a Glance is a free monthly publication, which offers the latest data along with expert commentary on the Houston region’s economy.
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Several events occurred over the past two months that are important to Houston’s growth:
This issue of Glance examines the potential impact of those events on Houston.
The WHO declared the coronavirus a health emergency on January 31. By then, more than 7,700 cases and 170 deaths had been confirmed in China, with 82 cases in another 18 countries. Beijing attempted to contain the virus, closing factories, cancelling public gatherings, limiting travel, and quarantining the 60 million residents of Hubei Province.
That may have been too little, too late. By February 10, China had reported 40,235 infections and 909 deaths. That equates to a 2.3 percent mortality rate, i.e., for every 1,000 people infected, 23 have died from the disease.
Though the number of deaths from the coronavirus now exceeds that of the Severe Acute Respiratory Syndrome, SARS had a higher mortality rate, 9.6 percent. Put another way, once infected, a person is four times more likely to dies from SARS than from the coronavirus.
The SARS outbreak reduced global growth by $40 billion in ’03, according to the Asian Development Bank. That equaled 0.1 percent of global GDP that year.
But much has changed since ’03.
Growth in the world’s second largest economy began to slow well before the coronavirus outbreak. The International Monetary Fund (IMF) forecasts China to expand 6.0 percent in ’20, down from 10.5 percent a decade ago. Measures to combat the virus (quarantines, factory closures) will pull that even lower. Analysts estimate that China’s growth will slow to between 3.0 and 5.0 percent in Q1 and Q2, but once the virus subsides and factories rush to fill orders, growth will rebound in Q3 and Q4.
China’s slowdown should have a marginal impact on U.S. growth. Only 12.1 percent of U.S. GDP is tied to international trade, while a much smaller portion is tied to trade with China.
The consensus among economists is that the U.S. GDP will grow around 2.0 percent this year. To reduce that to zero, the outbreak would need to eliminate $435 billion in U.S. output. Factories that source from China may endure shortages and U.S. consumers may face higher prices on goods produced there, but those impacts will be minimal and short-lived.
Potential Houston Impact
Until the ban on flights from China is lifted, Chinese tourists won’t be visiting Houston. They spent $158 million here in ’18, according to Houston First. To put that in perspective, total visitor spending topped $18.4 billion that year.
The trade war had already depressed commerce between Houston and Beijing. Though a truce has been reached, measures to control the virus’ spread will delay trade returning to previous levels.
China’s demand for crude has slipped by 1.0 to 3.0 million barrels per day, according to various estimates. The prices for West Texas Intermediate and Brent have fallen 21 to 23 percent as a result. Lower crude prices will translate to fewer U.S. wells drilled. Lower prices will also reduce cash flows. Some firms will struggle to service their debts, potentially leading to an uptick in bankruptcies.
There’s also the worry factor. Ninety percent of the economic damage from a pandemic stems from people’s fears of associating with others, according to The World Bank. That’s already happening in Houston. Merchants and restaurants in Chinatown have reported slower customer traffic since news of the coronavirus made headlines.
Bottom line: If the coronavirus pandemic remains outside the U.S., the overall impact on Houston will be negligible. The few sectors affected will recover once the outbreak is contained and normal trade, travel and business patterns resume.
Continue reading this month's Economy at a Glance for more insight into the role the U.S.-China trade agreement, the USMCA, Brexit, interest rates, and OPEC will have on Houston's future growth.