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Coronavirus: Affecting Humans and Global Economy

As the new coronavirus spreads around the world, and confirmed cases and deaths mount, economists are increasingly concerned about the impact on the world economy.

People are increasingly concerned about the new coronavirus outbreak. Hailing from Wuhan, it has spread really fast across the globe where thousands of confirmed cases have been identified and the death toll is increasing.  There is no doubt that it’s deadly for humans – but can it also be deadly for the economy?

As the world grapples with the coronavirus, the economic impact is mounting – with the OECD warning; the virus presents the biggest danger to the global economy since the financial crisis. There are now more than 116,000 confirmed cases of COVID-19 globally.

Businesses are dealing with lost revenue and disrupted supply chains due to China’s factory shutdowns, tens of millions of people remaining in lockdown in dozens of cities and other countries extending travel restrictions. Italy has placed quarantine measures on its entire population. With many companies and countries depending on the health of China’s economy, here are a few ways the outbreak is sending ripples around the world.

Predicted slump

China is the world’s second-largest economy and leading trading nation, so economic fallout from coronavirus also threatens global growth. Economists polled by Reuters between 7-13 February said they expected China’s economic growth to slump to 4.5% in the first quarter of 2020, down from 6% in the previous quarter – the slowest pace since the financial crisis.

On 2ND March the OECD warned of the dangers facing the global economy. In its latest Interim Economic Outlook, the organization said the virus was the “greatest danger” to the world economy since the financial crisis of more than 10 years ago.

Falling oil demand, stock markets down

China is the world’s biggest oil importer. With coronavirus hitting manufacturing and travel, the International Energy Agency (IEA) has predicted the first drop in global oil demand in a decade. “Global oil demand has been hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China’s economy. Demand is now expected to fall by 435,000 barrels year-on-year in the first quarter of 2020, the first quarterly contraction in more than 10 years,” the IEA said in its latest monthly report.

On 9 March, oil prices lost as much as a third of their value – the biggest daily retreat since the 1991 Gulf War, as Saudi Arabia and Russia signalled they would hike output in a market already awash with crude after their three-year supply pact collapsed. Also on March 9, after news of the lockdown in northern Italy, markets in London, Frankfurt, and Paris fell 7-8%. Italy’s main index lost 11%. Trading on U.S. stock exchanges was initially suspended as the S&P 500 fell 7%, triggering an automatic 15-minute cut-out put in place after the 2008-9 financial crises.

Impact on air travel

Coronavirus is also taking a toll on the airline industry, with the International Air Transport Association (IATA) predicting the outbreak could cost airlines $113 billion in lost revenue as fewer people take flights. British regional airline Flybe stopped flying on 6 March, as ongoing financial problems were exacerbated by loss of revenue due to the outbreak.

Disruption to commerce

The shortage of products and parts from China is affecting companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home to help reduce the spread of the virus. Apple’s manufacturing partner in China, Foxconn, is facing a production delay. Some car makers including Nissan and Hyundai temporarily closed factories outside China because they couldn’t get parts.

The pharmaceutical industry is also bracing for disruption to global production.

Many trade shows and sporting events in China, Asia and across the world have been cancelled or postponed.

The travel and tourism industries were hit early on by economic disruption from the outbreak.

Besides the impact on airlines, the UN’s International Civil Aviation Organization (ICAO) forecasts that Japan could lose $1.29 billion of tourism revenue in the first quarter due to the drop in Chinese travellers, while Thailand could lose $1.15 billion.

The disruptions from the virus may also jeopardize China’s ability to meet its commitments to the U.S under the terms of the trade deal, as it could affect Chinese demand for American goods. China had agreed to increase its imports of U.S. goods and services by $76.7 billion over the level in 2017 in the first year of the deal, and then by $123.3 billion in the second year, increasing imports by a total $200 billion.

Exports to the U.S. fell almost 28% in the first two months of the year, while imports rose 2.5%. That meant the trade surplus narrowed about 40% to $25.4 billion.

Viewpoint

With the SARS outbreak in 2003 still in recent memory, it seems natural to expect a similar overall effect on Chinese society and economy. For reference, the 2003 Severe Acute Respiratory Syndrome (SARS) crisis caused US$40 billion to US$50 billion in economic losses, mostly due to a fall in travel and consumer spending. With that in mind, here is a projection on how the coronavirus from Wuhan might affect the different regions:

  • A blow to the first-quarter growth is expected due to slowing consumer spending, travel, tourism, and manufacturing sectors.
  • A 40 million-strong population of Wuhan, Hubei province has been put in complete lockdown which means lower than usual consumer spending and expenditure on travel and tourism from that area of China

As for the economy, trade that has some economic relations with China is expected to be heavily affected by this outbreak. Their growth will be dependent on how the government in China and in other affected countries contain the outbreak and stop it from spreading any further. Back then, mainland China’s economy witnessed a decline of -2.4% in the quarter of the SARS outbreak. But there might be a more significant decline this time around. Chinese consumption amounts to more than 2/3s of their economy. This will make the Chinese urban and travel curfews much more impactful.

11 Mar 20/Wednesday                                                                                            Written By: Saima Ibrahim

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