Can Coronavirus Hit the World Economy?

It has been two decades already since SARS (severe acute respiratory syndrome) emerged in China, killing hundreds of people and creating panic that was about to hit the world economy. The new virus that appeared at the end of December 2019 can be much more damaging. The official name for the new virus is COVID-19. More than thousands of people have been already infected and more than 3,000 people have already died, according to recent studies.


What is Coronavirus?

Coronavirus is still a new virus and new things about this virus are being learned about it on an everyday basis. Specialists claim that coronavirus might not have initial symptoms in the beginning. A complete list of symptoms is yet to be investigated. However, experts still determine possible symptoms of COVID-19 and they are as follows:

    1. Cough that continues for several days and gets worse over time (in some cases, cough can lead to back pain)
    2. Short of breath
    3. Fever that increases gradually

The Impact of Coronavirus on a Global Economy

When we already know a little bit about this virus, it is time to determine the effect it can have on the world economy. In the last couple of years, China has become an indispensable part of the world’s business. It has also become a world’s factory, producing numerous products and driving the demand for commodities like copper and oil. China has hundreds of millions of wealthy consumers who tend to spend a lot of money on luxury goods, tourism and vehicles. China accounts for around 16 percent of the world’s GDP (Gross Domestic Product).

Coronavirus has enough potential to cause serious market and economic dislocation. However, the extent of impact will be determined by the way the virus spreads and evelves, which is almost impossible to predict as well as the way governments are going to respond. Globalizations stimulated a number of companies to build their supply chains across the globe, which makes economies more interconnected. Rising nationalism can make it extremely difficult to coordinate a worldwide response.

COVID-19 is snarling supply chains and disrupting a lot of companies. Chinese government has ordered car manufacturers to keep their plants closed following the Lunar New Year holiday. It prevented the largest car manufacturers such as VOlkswagen, Toyota, Daimler, General Motors from resuming operations in their plants, thus interfering in the production process. According to a recent research, coronavirus will lead to a decrease of car production by approximately 15 percent in the first quarter.

It should also be mentioned that luxury goods manufacturers that rely on Chinese wealthy consumers who tend to spend a lot both in China and while being on vacation have also been hit. A number of global airlines have dramatically decreased the number of flights to and from China. Experts say that there is a huge threat to global supply chains. QCOM, which is the largest manufacturer of smartphone chips, has emphasized on the fact that COVID-19 is creating uncertainty around the demand for smartphones and the supplies needed for their production. In addition to that, the shortage of auto parts has forced Hyundai to close factories in South Korea and has made Fiat Chrysler to create contingency plans for the purpose of avoiding the same situation at one of their plants in Europe.

Specialists say that the current level of disruption can still be managed. They also add that if the number of people infected by coronavirus starts slowing down and Chinese factories reopen soon, there will only be a slight hit on the Chinese economy in the first quarter and there will only be dent in global growth. Although, if the virus continues to spread, the world’s economic damage will increase rapidly. If the virus continues to spread further, Chinese government will have to disrupt trade, supply chains and travel. If this is going to be the case, the world’s economy will take a huge hit.


Epidemic Risk

Currently, it is extremely difficult to estimate the potential costs of coronavirus because of its unique characteristics. This disease can be much more damaging than natural disasters such as a tsunami or hurricanes. The World Bank states that coronavirus could possibly cause economic losses of approximately 5 percent of global GDP or more than $3 trillion. However, it should be also said that coronavirus has not yet been declared a pandemic by the World Health Organization. Specialists say that the virus itself is not the driver for the aforementioned losses. The main driver is the way consumers and businesses respond to it.

During an outbreak, people tend to stay at home, avoid traveling, shopping and even working, which limits the demand for consumer goods. Government decisions regarding the close of factories is going to cause a significant decrease in production. Specialists also add that unless factory closures do not lead to job losses, the level of GDP is not going to be much different from what it would have been without the virus.

What Measures Can be Taken?

Chinese government has taken early measures in order to counter the economic fallout from the coronavirus. Recently, the People’s Bank of China has decreased the key interest rate and invested huge amounts of cash into markets for the purpose of helping take the pressure off the banks and borrowers. Chinese government has also announced new tax breaks in order to help consumers.

The vast majority of leading countries are expecting the Chinese government to implement additional measures in the coming days. If the virus continues spreading, Beijing will be forced to abandon its long-term efforts in order to manage its debt and inject money directly into the economy. The United States Federal Reserve has already cut the interest rates three times in the last three years. Additionally, the European Central Bank implemented negative interest rates in 2014 and has not been able to increase them since that time. The Bank of Japan is in a similar situation.

Global debt has increased to more than three times the size of the global economy, which is the highest ratio on record. Furthermore, a critical factor is whether governments will be able to coordinate their response to the outbreak with help from multinational institutions. The World Bank warns that preparedness for a potential pandemic is very low. However, coordination might be difficult in the world where nationalism is prized over cooperation. It is now clear that multinational institutions are under higher pressure but specialists still believe that global institutions are still in a good position to face a potential global pandemic.

Once again, coronavirus is still a new virus and a complete list of symptoms is yet to be discovered. However, you should remember the following potential symptoms of COVID-19, which are as follows:

    1. Cough that continues for more than seven days and gets worse over time (sometimes leading to back pain)
    2. Fever
    3. Short of breath

Doctors claim that if you have been experiencing the aforementioned symptoms or have been in contact with someone who was diagnosed with this virus or have traveled to China in the last couple of days, you should schedule a consultation with a primary care physician immediately. Even though coronavirus does not equal death, there are numerous severe conditions of this disease that could eventually lead to death. Thus, practice simple prevention techniques such as washing your hands for at least 20 seconds with warm water, disinfect all the objects that you touch and eliminate the contact with people who have the symptoms mentioned above.

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