Wuhan Coronavirus: A threat to the global economy
The Coronavirus outbreak that originated in Wuhan has killed at least 427 people and infected nearly 20,000 people across 26 countries so far. Ever since tackling the menace that SARS had brought to China nearly two decades ago, the country’s importance in the global economy has increased exponentially. Now, 17 years later, the world’s most populous country has been attacked yet again with another deadly epidemic: Coronavirus.
According to Andy Rothman, an economist at Matthews Asia, China today accounts for about one-third of the total economic growth, which is a larger share of global growth than that of the U.S., Europe and Japan combined. Over time, besides producing simple low-value products like plastic goods and clothing, China had achieved dominance in more advanced and lucrative pursuits like gadgets, smartphones, computers and auto parts. The country has now evolved into an essential part of the global supply chain that produces components required for factories from Mexico to Malaysia. Also, China had just joined the World Trade Organization, gaining access to markets around the globe. While the country was harnessing its seemingly limitless supply of low-wage workers to produce cheap consumer goods, its economy was more focused on exports.
Moreover, being a nation of 1.4 billion people with a growing appetite for electronic gadgets and fashion apparel, China has now risen into an enormous consumer market. According to the World Bank, since joining the WTO, China’s annual economic output had multiplied more than eightfold to nearly $14 trillion from $1.7 trillion. Its share of global trade has more than doubled to 12.8 per cent last year from 5.3 per cent in 2003, according to Oxford Economics. After SARS, China had suffered several months of economic contraction, but it had rebounded dramatically as well. That might happen this time too, but one thing that we’re certain of is that whatever happens in China will be felt widely.
According to a conservative forecast of the Oxford Economics that is based on the impacts of the virus so far, China’s economic growth is expected to drop to 5.6 per cent this year from 6.1 per cent last year. This would lead to a downfall in global economic growth by 0.2 per cent bringing it to 2.3 per cent (the slowest pace since we faced the global financial crisis a decade ago!!).
The frightening epidemic coinciding with a major holiday in China will certainly bring a substantial loss to China’s tourism and hospitality industry.
While international airlines including British Airways, American Delta and Lufthansa have cancelled all their flights to China, international companies that rely on China for either production or sales are now in deep trouble. As shopping malls remain deserted, apparel stores like Under Armor clothing and Nike face-threatening sales. Besides, as the government has extended the Lunar New Year holidays to halt the spread of the deadly virus, workers who went to visit their families during that time remain stuck in their hometowns. As a result, the activities of car factories that produce for companies like Toyota and General Motors remain suspended. Moreover, stores like Ikea, Apple and Starbucks have already closed all their stores in China.
“It’s too early to say how long it is going to last”, says Ms Rohini Malkani, an economist at DBRS Morningstar, a global credit rating business. It’s true; no one really knows how long the Coronavirus outbreak will last, how far it will spread or how many more lives it will claim. It is impossible to calculate the extent to which it will disrupt China’s economy but the country’s stellar stature in the world economy means that the impact of the outbreak will substantially exceed that of SARS.