The Economic Impact of COVID-19
Since the SARS outbreak, China has grown from the world’s sixth-largest economy to the second biggest today. The country has been a key growth driver worldwide, with the International Monetary Fund estimating that China alone accounted for 39% of global e
While much of the world’s attention is rightly focused on the human toll of COVID-19, the economic toll of the outbreak also has potentially disastrous implications. According to the World Economic Forum, the spreading coronavirus is taking a toll on economic players around the world, from farmers in the Americas, to manufacturers of solar panels in India, to tourism workers across Asia. China, home to the majority of confirmed cases so far, has been dubbed the “world’s factory” due to the significant portion of global manufacturing that now typically takes place there.
Data analysis firm IHS Markit predicts that the new coronavirus outbreak will be worse for the global economy than the 2003 SARS epidemic was – costing the global economy about USD40 billion.
As China is no longer only producing low-cost products like sneakers and sweatpants for the masses as it was during SARS, and has evolved into a crucial element of the global economy, this crisis could create a substantial threat.
China accounted for 4.2 percent of the global economy in 2003, but now determines 16.3 percent of the world’s GDP. Therefore, any slowdown in the Chinese economy sends not ripples, but waves across the globe. The uncertainty in China could also affect global oil prices as China accounted for half of the world’s oil demand growth in 2019.
However, most of the economic cost of the outbreak is not related to the virus, but the panic surrounding it.
The long-term economic impact of the new coronavirus outbreak will be determined largely by China’s containment measures, and the IHS Markit reports that if the current and unprecedented confinement measures in China are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020.
However, China’s economic growth is expected to slip this year to 5.6 percent, down from 6.1 percent last year, according to a conservative forecast from Oxford Economics that is based on the impact of the virus so far. That would, in turn,
As the coronavirus outbreak rattles the global economy and disrupts supply chains, international companies across nearly every industry are confronting a stark reality: Business will not go on as usual.”
“Coronavirus Outbreak Deepens Its Toll on Global Business”, New York Times
reduce global economic growth for the year by 0.2 percent, to an annual rate of 2.3 percent – the slowest pace since the global financial crisis a decade ago.
Businesses and companies affected by COVID-19
- Apple, Starbucks, Google, and Ikea have temporarily closed stores or scaled back operations in China. An estimated 5 million jobs in China rely on Apple manufacturing alone.
- HSBC plans to cut 35,000 jobs over the next three years as the global bank scales back its Western operations to focus on faster- growing Asian markets, particularly China.
- Tesla temporarily closed its stores in mainland China as of Sunday, Feb 2, according to an online post from a company sales employee on that date.
- General Motors, the largest U.S. automaker in China, shut its Chinese factories down till early March. - International airlines, including Delta, United, Lufthansa, and British Airways, canceled flights to China.
- The International Air Transport Association has warned of a deep downturn in earnings among global carriers related to the collapse of travel in Asia because of the virus. The virus outbreak could reduce global airline revenue by about USD29 billion this year. - The ongoing coronavirus spread is expected to affect the transport and tourism sectors and associated industries and companies. Air traffic through Changi Airport, Singapore, which is one of the world’s most interconnected hubs, is expected to decline and hotel room cancellations are anticipated.
- Thailand, where more than one-quarter of all visiting vacationers last year were Chinese, has seen its tourism industry suffer.
- Adidas, the German sportswear maker, said that its mainland China business had been decimated by the outbreak.
- 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.
- Singapore may view itself as an oasis of calm prosperity in a turbulent region, but all it took was one viral image of a local woman in a face mask hoarding noodle packets to kick off a storm of coronavirus-related anger and recrimination in the city-state.
- Indonesia once aimed to attract 10 million Chinese tourists per year. Now, it’s poised to lose about USD4 billion in tourismrelated revenue as a result of COVID-19. Already, thousands of Chinese-speaking tour guides have lost their jobs, and tensions between the country and China are running high.
- On January 19, 2020, Myanmar officially marked the beginning of the “MyanmarChina Bilateral Cultural and Tourism Year”, partly in response to a sharp decline in tourists visiting the country from the US and Europe. Unfortunately, two days later, the World Health Organization published its first COVID-19 situation
report, noting the first several hundred of thousands of cases in China.
- One bright spot for everyone sharing a planet with China: Lowered electricity demand and industrial output in the world’s second-largest economy related to COVID-19 reduced its typical carbon emissions during the first half of February by one-quarter.
- Historical precedents, like the Genovese merchants who brought the Black Death home to Europe from Asia, suggest the spread of COVID-19 should halt trade with China. But in reality, boosting trade with the country may help both China as well as other economies better cope with its impact.
We are working to provide a fast, flexible response based on developing country needs in dealing with the spread of COVID-19.”
David Malpass, President of World Bank Group