Coronavirus: greatest hit of the global economy
As world health organization stated Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus. Most people infected with the COVID-19 virus will experience mild to moderate respiratory illness and recover without requiring special treatment. Older people, and those with underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer are more likely to develop serious illness.
The coronavirus crisis is first and foremost a public health threat, but it is also, and increasingly, an economic threat. The so-called “Covid-19” shock will trigger a recession in some countries and a deceleration of global annual growth to below 2.5 per cent as global financial platforms forecast– often taken as the recessionary threshold for the world economy. The resulting hit to global income compared with what forecasters had been projecting for 2020 will be around the trillion-dollar mark; the bigger question is could it be worse?
The duration and depth of the crisis will depend on three variables: how far and fast the virus spreads, how long before a vaccine is found, and how effective policy makers will be in mitigating the damage to our physical and economic health and well-being. The uncertainty surrounding each of these variables is adding to people’s sense of anxiety, which is a fourth variable that will shape crisis outcomes.
Since the outbreak in January, close to 300,000 people have been infected worldwide, with a fast-rising share of these outside China. The epicenter of the outbreak was in Hubei province, which accounts for about 4.5% of China’s output, but the effects have been quickly apparent throughout China with efforts to control the spread of the virus leading to wide-ranging restrictions on passenger transportation, labor mobility and hours worked. Available indicators for February point to significant declines in activity inside China, and the tentative signs of a mild improvement towards the end of the month appear unlikely to be rapid enough to prevent the level of output in the first quarter of 2020 being lower than in the fourth quarter of 2019.
In china as national statistics bureau stated the starting point for our analysis is what’s happening in China, where automobile sales have plunged 80%, passenger traffic is down 85% from normal levels, and business surveys are touching record lows. The economy, in other words, has practically ground to a halt.
Bloomberg Economics estimates that GDP growth in the first quarter of 2020 has slowed to 1.2% year on year—the weakest on record. If China doesn’t get quickly back on its feet in March, even that forecast could prove optimistic and china won to stop this serious pandemic disease and now life returns to its normal way.
In 2019, China imports came in at $2.1 trillion. From Starbucks lattes to Yum’s crispy fried chicken, sales in China are a major earner for multinationals. And Chinese tourists staying home hits everyone from South Asia’s beach resorts to the boutiques of Paris. China is the world’s biggest producer of manufactured components. When Chinese factories shut down, the widgets that go into everything from Apple’s iPhones to construction machinery become harder to find. The impact reaches small businesses too. In Hong Kong, a jewelry designer found that his automated, digitized Chinese suppliers have gone offline. They could churn out 1,000 rings in a day. His workers just spent a week hammering out a single one. “I’m back into, like, pre-historic jewelry making,” he lamented. China shocks have spread across global financial markets before, including the surprise yuan devaluation in 2015. The coronavirus is repeating the pattern, and on a larger scale, as equities plunge around the world and deliver knock-on blows to household wealth and business confidence.
The OECD cut its expectation for global growth to 2.4% from 2.9%, and warned that it could fall as low as 1.5%. Goldman Sachs expects a global contraction in the first half of the year. Recent forecasts for first-quarter GDP growth in China range from 5.8% all the way down to -0.5%, underscoring the high degree of uncertainty. Policy research predating the coronavirus outbreak suggests there’s a downside risk to even the most pessimistic of these forecasts. A 2006 paper by the World Bank put the potential cost of a severe flu pandemic at 4.8% of global GDP—a tailspin that would rival that seen in 2009 after the financial crisis.
Globally, the airline industry is set to lose $29bn, according to the International Air Transportation Association (IATA). And the effect of COVID-19 is being felt regionally. “Well, as you know, from 15 to 20 years ago China was already dubbed as ‘the factory of the world’ so then what we have seen now is that the supply chain sourcing has been interrupted,” Reuben Mondejar, professor for Asian Initiatives at the IESE Business School, University of Navarra, tells Al Jazeera.
Trade and investment tensions remain high and could spread further. The prospects for a further trade deal between the United States and China that would remove all the remaining tariffs put in place over the last two years are uncertain. In addition, other bilateral trade tensions could also still spread, notably between the United States and Europe. Failure to achieve a prompt resolution to the current disruption to WTO dispute settlement procedures would also add to global trade policy uncertainty. A particular concern is that trade and investment restraints may be used as levers in negotiations about taxation of global corporations and other non-trade-related issues.
Could Covid-19 create its own structural legacy? History suggests that the global economy after a major crisis like Covid-19 will likely be different in a number of significant ways.
Microeconomic legacy: Crises, including epidemics, can spur the adoption of new technologies and business models. The SARS outbreak of 2003 is often credited with the adoption of online shopping among Chinese consumers, accelerating Alibaba’s rise. As schools have closed in Japan and could plausibly close in the U.S. and other markets, could e-learning and e-delivery of education see a breakthrough? Further, have digital efforts in Wuhan to contain the crisis via smart-phone trackers effectively demonstrated a powerful new public health tool?
Till now, some countries in sub-Saharan Africa have officially been affected by the COVID-19 disease including Nigeria and Senegal which were the first sub-Sahara African countries affected by the virus. But the economic consequences of the coronavirus outbreak are already being experienced on the continent. Other horn African countries like Ethiopia, Kenya, Djibouti and Somalia experienced the cases of Coronavirus but not more than 20 cases and they are well-prepared now, and they banned some countries including Asian and some European countries, but the economic effect of coronavirus is there like other parts of the globe.
By: Mousse Abdi
Senior Economist, writer and commentator.
Email: muuze438@yahoo.com
