8 March 2020, NIICE Commentary 3308
Sunil Kumar Chaudhary
On 31 December 2019, the first case of Coronavirus was reported from Wuhan, China, which later spread across various countries around the globe. Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). A novel coronavirus (nCoV) is a new strain that has not been previously identified in humans. On 30 January 2020, the outbreak was declared a Public Health Emergency of International Concern. World Health Organization (WHO) announced a name for the new Coronavirus disease: COVID-19 on 11 February 2020 and subsequently on March 11 2020 announced COVID-19 as a pandemic. This article looks at the impact of COVID-19 on Chinese as well as global economy
The global outbreak of COVID-19 is a human tragedy spreading across the world. At this moment the economic impact of COVID-19 is difficult to quantify due to significant uncertainty about the economic outlook and the associated downside risks. This uncertainty is leading the economic growth and financial stability at risk.
Impact on Chinese Economy
The Coronavirus (COVID-19) outbreak has potentially serious implications for the Chinese economy. Economists expect that China’s economic growth to slump to 4.5 percent in the first quarter of 2020, down from 6 percent in the previous quarter – the slowest pace since the financial crisis. The fear of COVID-19 has reached financial markets, with Chinese and Asia asset prices coming under pressure over the past few weeks which is also appearing in global markets. China, the epicenter of novel coronavirus, is the second largest economy in the world and is the world’s manufacturing powerhouse responsible for nearly 30 percent of the country’s economic output according to UN. Bigger impact will be felt as globalization has positioned China at the heart of complex supply chain. Companies worldwide depend on supplies from China for their operations, hence the consequences of factories shut down in COVID-19 affected provinces have resulted in shocks across a wide range of industries.
Top 10 Countries by Share of Global Trade in 2018
The outbreak of deadly new coronavirus (COVID-19) has the ripple effect of shutdowns across the country, leading to disrupted supply chains – with damaging consequences for companies around the world. The country’s official measure of manufacturing activity – the Purchasing Manager’s Index (PMI) – dropped to 35.7 from 50 in January. It shows the virus is having bigger impact than the financial crisis that shook the world last decade. Factory shutdowns are slowing the flow of products and parts from China, affecting companies around the world, including Apple and Nissan. Businesses are dealing with lost revenue and disrupted supply chains due to China’s factory shutdowns. while tens of millions of people remain in lockdown across dozens of cities and other countries extending travel restrictions.
Due to uncertainty of the containment of COVID-19, it is difficult to anticipate the impact it will have on the economy. The Chinese economy will be disrupted as the largest exporter in the world faces the decline in the global demand with the COVID 19 spreading rapidly across the world. .China’s exports shrank by 17.2 percent in January and February and likewise the foreign trade fell down 11 percent compare to last year because of the novel virus.
Impact on Global Economy
The spread of Coronavirus is pushing the world economy toward its worst performance since the financial crisis 2008-09. The fear of COVID-19 has reached financial markets, with Chinese and Asia asset prices coming under pressure over the past few weeks which is also appearing in global markets.
China is the world’s biggest oil importer. With Coronavirus hitting manufacturing and travel, the International Energy Agency (IEA) has predicted that the oil demand is 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. Thus, oil exporters economies will face serious problems. 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 carmakers 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 have been affected early on by economic disruption from the outbreak. ICAO also forecasts that Japan could lose USD1.29 billion of tourism revenue in the first quarter due to the drop in Chinese travelers while Thailand could lose USD1.15 billion. COVID-19 has revealed cracks in Southeast Asia’s growth. Many countries in the region have leaned too heavily on external demand from their larger neighbor, and on China-centric supply chains. India’s aiming for 100 gigawatts of operational solar power capacity by 2022. However, China accounts for nearly 80 percent of the solar cells and modules imported to the country – and COVID-19 means that many of those imports have now been put on hold. Indonesia aimed to attract 10 million Chinese tourists per year. Now, it’s poised to lose about USD4 billion in tourism related revenue as a result of COVID-19. Visit Nepal 2020, aimed to attract two million of tourists got cancelled. Several high level conferences and seminars are put on postponed or cancelled.
Already, thousands of Chinese-speaking tour guides have lost their jobs, and tensions between the country and China are running high. Airlines worldwide have struggled after a spike in new coronavirus cases were reported in Italy, South Korea and Iran, spooking leisure travelers and sparking the cancellation of business trips. Global airline revenues are expected to fall by USD4-5 billion in the first quarter of 2020 as a result of flight cancellations, according to a report from the UN’s International Civil Aviation Organization (ICAO). The International Air Transport Association (IATA) said the spreading coronavirus could cost airlines industry USD113 billion in lost revenues this year, with global air travel expected to fall for the first time in more than a decade after 9/11 and 2008 financial crisis. The speed of COVID-19 spread across the world will damage the global economy.
Opportunities for Change
The crisis has built the basis for more professional and transparent public-private partnerships in China. Investors could seize opportunities in the long-term trend of technological innovation and capital market reform. The entrepreneurial spirit is now vital to Chinese businesses. Global cooperation is essential to the containment of the Covid-19 and its economic impact, particularly if the outbreak turns out to be more persistent and widespread. New business models is likely to emerge especially in sectors such as health, logistics, automation, online office, entertainment, retail, and education. New generation smart city will systematically enhance public management by integrating supply chains, traffic, emergency and disaster warning. Big data will be more widely used for public wellbeing, especially for tracking, analyzing, and supporting timely public decision-making. Offline-driven businesses will begin to shift online, especially in education, entertainment, and retail. The value chain of healthcare will be extended to cover early detection and prevention. Future application scenarios will include more participants and promote a comprehensive ecosystem for public health agendas. Social media is changing from being the channel between not only individuals and business, but also public and the government.
