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Feb 24

China’s Economic Pain from Coronavirus Will be Felt Across the Globe

February 2020.

Much of the talk around the China coronavirus has been on the economic damage to the Chinese economy. However, the outbreak will also take a bite out of the global economy, since China is a major player in international trade…

China has just finished a week-long celebration of the Lunar New Year, but there hasn’t been much to celebrate this time around, as China grapples with its most severe health emergency since the SARS epidemic in 2003. When Chinese financial markets reopened on Monday, after being closed for a week, investors were greeted with sharp declines. Chinese stock markets plunged 8 percent, while the Chinese yuan fell over 1 percent. The virus has already claimed 595 lives in China and infected over 20,000. The outbreak has severely disrupted China’s economy, but the effects of the coronavirus, which has spread to more than 17 countries, will no doubt be felt across the globe.

What will be the impact of the virus on the global economy? China is a key economic centre in an integrated global economy. One useful measuring stick is the SARS pandemic in 2003, which also originated in China. SARS is estimated to have caused losses of some $40 billion and shaved 0.1% off of global GDP. The current virus will be far more costly, since China’s share of global GDP has jumped from 4% in 2003 to 16% at present.

Global tourism will be hit hard, as the sector catered to some 163 million tourists in 2018. This accounted for about one-third of travel retail sales worldwide. Thus, countries that are dependent on Chinese tourism, such as Japan, Thailand and other Southeast Asian countries, will feel the economic bite of fewer Chinese tourists.

The virus has already disrupted world-wide trade and supply chains and forced multinationals operating in China to suspend operations for an unknown amount of time. Apple, for example, which employs some 10 thousand people in China, has closed all of its stores and offices in China until February 9. The company is also facing disruptions to its production plans due to the forced closure of Chinese factories by the government. Hyundai Motor will suspend production in South Korea because the coronavirus outbreak has disrupted the supply of parts, it said, becoming the first major carmaker to do so outside of China. Other multinationals are also facing heavy economic losses due to the outbreak.

As with the SARS virus, some of the economic costs of the current epidemic will be difficult to quantify. However, there’s no doubt that the global economy will face a ripple effect from the deadly coronavirus that is having a devastating effect on China’s economy.
 

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