A screen in downtown Chengdu broadcasts news urging people not to go to Wuhan due to coronavirus outbreak.
On the cusp of 2020, the world eagerly looked toward the Summer Olympics, a NASA mission to Mars, and even more self driving cars. What caught us by surprise was a very different headline: a coronavirus pandemic spreading across multiple continents. Novel coronavirus (nCoV) is a zoonotic strain of coronavirus, meaning it is transmitted between animals and humans. The coronavirus has spread globally from its epicenter in Wuhan, China and it was estimated on February 8th that 724 people have died, with nearly 35,000 people infected globally. As it was recently declared a global health emergency by the World Health Organization, the virus is the focus of the scientific community. While scientists and medical health professionals are tasked with fighting the virus itself, the world’s economists are looking at impacts beyond the physical.
Comparisons have been made to another coronavirus: SARS, severe acute respiratory syndrome. In 2003, the SARS epidemic resulted in 8,000 cases in 26 countries. The epidemic began in 2002 in southern China, and those infected presented with symptoms similar to the flu, eventually requiring hospitalization. Similar containment measures for the current virus were put in place during the SARS outbreak, including bans on travel. The industry hit hardest by the outbreak was the service industry, including hospitality, tourism, retail, which in the early 2000’s accounted for 42% of China’s GDP. Overall, the epidemic slowed China’s economic growth, going from 11.1% in the first quarter to 9.1% in the second.
As the world’s economy tries to grasp the potential impact of the recent outbreak, the comparison of today’s situation to the SARS outbreak can provide some context. It is difficult to determine any particular figures for economic consequence of the nCoV outbreak because it is impossible to determine how long it will last or how much damage it will do. However, nCoV is moving more quickly than SARS did with more cases already confirmed, and an Oxford Economist, Tommy Wu, theorizes that “the impact could be more severe than during the SARS episode.” China’s global standing is different today than it was in 2002, now accounting for 17% of the global GDP and heightening the impact of the crisis. Economists estimate that China’s growth rate has the potential to drop two percentage points in this quarter, which would equate to a $62 billion loss., Mark Williams, chief Asia economist at Capital Economics, confirms, “…it is now certain that the outbreak will have a significant impact on China’s GDP this quarter.” Fluctuations in GDP are less commonplace today due to China’s growing economy, so the extent of the influence of large dips in the GDP might be larger.
The timing of the nCoV outbreak is also essential to determining the economic implications. The service industry now makes up 54% of China’s GDP, a marked increase since SARS. As the outbreak began just before the Lunar New Year, a hefty amount of money was lost in a time usually heavy with tourism and purchasing of goods. Also, this timing might have exacerbated the spread and therefore the impact of the virus. Millions of people were travelling during this time, and millions of people looking to return to work will probably be looking to travel back into cities for work. However, businesses are to remain shut for an extended period after the holiday, and there are travel limitations for around 20 cities.
With $12.6 billion being put towards medical care, additional repercussions include losses in banking, the box office, employment, and rising food prices. Banks have reduced interest rates in hard hit areas, but the Bank of China is allowing leniency in loan payments for several months.Additionally, multiple movie releases were cancelled during the holiday season, a large impact considering the breadth of China’s box office. Employment, a market already weakened in recent years, also faces job losses, especially in high-employment industries like technology. As businesses remain closed, many will find it hard to make ends meet, especially as food prices begin to rise in the wake of the outbreak. Meat was already expensive due to a previous African swine fever outbreak, and vegetable prices have also increased.
Looking at global impact, Asian countries neighboring China such as South Korea and Vietnam are at risk of the most negative impact due to interconnectivity in shared resources and tourism. Tesla and Apple are two companies already affected by the outbreak, with the former temporarily shutting down a factory in Shanghai, and the latter at a production loss due to a lack of supply from Wuhan. A trade deal between the US and Beijing in January required Beijing to purchase $200 billion of US goods over a two year time frame including soybeans and wheat, and the virus might make it more difficult for China to reach those numbers.
Although it seems likely that there will be an effect on China’s economy this quarter, some economists are more optimistic, speculating that “the coronavirus may prove to be only a temporary shock (both on the demand and supply sides) and may not necessarily leave a long-lasting impact.”. All that is left for the world’s economy to do now is wait.
Note: This article was last edited on February 8, 2020 and we recognize that numbers of nCov-2019 infections and deaths may have changed since then.
Photo from Shutterstock.