By: Emma Miao (Grade 10)
The Coronavirus’ Impact on the Global Economy
The novel coronavirus has been declared an international health crisis and an epidemic within China. Many countries have closed their borders to Chinese flights. Perhaps more concerningly, the crisis has harbored a flood of sinophobic comments, both on the internet and the streets. But what does this mean for China’s economy?
The 2003 SARS outbreak cost the Chinese economy $40 billion, infected 8,098, and killed 774 in 37 different countries. During the epidemic, people avoided social gatherings and going outside at all, which hit the social service industry particularly hard. While the Chinese economy was growing at an 11.1% rate in the first quarter of 2003, it dropped to 9.1% in the second (2% is generally considered a lot).
In comparison, there are now more than 15,000 cases of the novel coronavirus, and more than 400 people have died. But many fears are unfounded outside of China. More people have died from the common cold than have from the coronavirus thus far, and because of the quarantine, people are lax to go outside, preventing the disease from permeating out of borders.
Much of this damage was not due to the virus itself, but the government’s efforts to prevent its spread. With strict regulations on moving out of Wuhan, 11 million people are effectively quarantined within their homes, unable to connect with family or participate in Chinese New Year celebrations.
Chinese New Year is often the busiest time of year for Chinese families, so the economy felt a hard hit in commercial losses. For perspective, last year, Chinese consumers spent more than 1 trillion yuan ($145 billion) on holiday shopping, dining, entertainment and travel. This year, however, many stayed home for the holidays, cancelling plans at restaurants and public celebrations in favour of using home-streamed services.
The Chinese government has prolonged the Chinese New Year Holiday to Feb 2 in hopes of containing the disease; this will impact millions of working people and children as government offices and schools remain closed for more than a month.
Many companies will have to continue paying their employees, despite having little to no customers. This model is unsustainable— as a result, companies in the foodservice industry, including restaurants and hotels, are increasingly filing for bankruptcy. The major airlines, Air China, China Southern and China Eastern, which contribute 2.5% to China’s GDP, are also suffering.
The novel coronavirus, while heavily impacting the Chinese economy, could have a larger ripple effect on the global economy. In 2003, China took roughly 4% of the world’s GDP; now, it accounts for about 15%. Even with this powerhouse economy exacerbated by the US-China trade war, and growing at its slowest rate in the past three decades, it remains one of the biggest players in global business & stocks.
Since 2003, China has grown into the world’s factory — producing everything from McDonald’s toys — and controlling the prices of oil and copper. Neil Shearing, chief economist at Capital Economics, says “the outbreak has the potential to cause severe economic and market dislocation”. With the rise of Globalization, economies are now much more interconnected, which means even a slight dip in China’s will cause prices to fluctuate across the world.
Car plants, for example, have been ordered to remain closed across China until the production ban has been lifted. This has prevented global automakers Volkswagen (VLKAF), Toyota (TM), Daimler (DDAIF), General Motors (GM), Renault (RNLSY), Honda (HMC) and Hyundai (HYMTF) from resuming operations in the world’s largest car market. This may force carmakers to slash production by 15% during the first quarter of 2020, predicts S&P global ratings.
Economists say the current economic disruption level is manageable. If the number of victims slows, and factories and shops reopen, the hit will be minimalized; the economy will recover. However, if the virus continues to spread, the Chinese and global economy will feel palpable effects.
The world holds its breath to see what will happen next.
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