Derailing the Global Economy in Medical Emergency: The Corona Virus Impact

Sanchita Chatterjee
February 23, 2020

 

Although morbidity and mortality statistics are important factors in measuring the impact of disease on societies, they provide an incomplete picture of the adverse effects on human wellbeing in toto. The economic consequences of medical emergencies could be particularly significant. Analysis of the economic impact of ill-health addresses several policy issues relating to the consequences of a medical emergency. Some of these concerns relate to the microeconomic level of households, businesses, or government, such as the effect of ill-health on the income of a household or the profits of a business, while other concerns relate to the macroeconomic level including the aggregate impact of a disease on the present and future gross domestic product (GDP) of a country. In addition to directly affecting people’s health, infectious diseases often threaten entire societies, communities and political systems. Trade embargoes or travel and immigration restrictions arising from infectious disease outbreaks would create apprehension and hamper global trade to the greater detriment of poor countries.

Since the SARS outbreak in 2003, China has grown to become an integral part of global business and value chain. It has developed into the world’s factory, churning out important goods like the iPhone and driving demand for resources like oil and copper. Beijing also boasts hundreds of millions of affluent customers who spend heavily on luxury goods, tourism and automobiles. In 2003, China’s economy accounted for roughly 4 percent of global GDP; it now accounts for 16 percent of global production.

Globalization has encouraged businesses to build supply chains across national boundaries, making economies much more interconnected. The sudden spread of the coronavirus is a huge blow to the world economy which was on its way to a moderate regeneration. The WHO recently announced that COVID-19 is the official name for the disease that caused the outbreak of the 2019 novel coronavirus. Following the first indications of cases of acute respiratory syndrome in the Chinese Wuhan municipality at the end of December 2019, a novel coronavirus was described by the Chinese authorities as the principal causative agent. The epidemic has developed quickly reaching other parts of China and beyond. Cases have now been found in many Asian countries, but also in Australia, Europe, North America and Africa. The extent of the damage, of course, depends on how quickly the outbreak is controlled, and how efficiently. The effect of the disease is tremendous and is felt worldwide. Regardless of the direction of the outbreak, this is a serious moment for the economy of China. As of 17 February 2020, more than 71,000 people have been infected by the novel coronavirus worldwide, mostly in mainland China. The death toll has crossed 2000, five of which are outside mainland China. There are currently at least 780 cases confirmed in more than 28 countries and territories outside mainland China. The Chinese President Xi Jinping declared a lockdown of Wuhan, a town of 11 million residents, on January 23 to contain the deadly infection. The Chinese economy is severely handicapped by quarantines and other mandatory steps aimed at containing the outbreak, with knock-on consequences elsewhere in Asia.

Wuhan is the capital city of Hubei Province, one of the industrial centres of China. This province has factories of leading Japanese carmakers Honda and Nissan, as many of their European rivals. Car parts manufacturers, electronic components, and industrial equipment also have significant regional manufacturing facilities in the region. For the global motor industry and the electronics industry, China is a significant supplier. Many of these factories had to stop production because after the Chinese New Year holiday their workers were unable to return. The epidemic driven shutdowns are a huge shock to the supply chains of multinational companies across Asia.

Furthermore, infectious diseases in general, especially those that can trigger an outbreak, continue to cause costly trade and trade disruptions in every region of the world. The coronavirus creates further uncertainty and disruptive supply chains in Asia, adding to the long list of factors that are expected to retain the US and global growth for 2020. More than 60 countries have imposed travel restrictions on Chinese citizens as novel coronavirus spreads, hoping to limit their exposure to the virus. Taiwan is likely to be the hardest hit, based on the value of its exports to mainland China and Hong Kong relative to GDP, followed by Vietnam, Malaysia and South Korea. The coronavirus outbreak will also disrupt exports of Chinese products to Japan, particularly processed foods and clothing. All of these factors would cause shortages in supply and thereby dampen economic growth among China’s trade partners. Industrial production has been interrupted as a result of work stoppages and delays resulting from these containment measures. Southeast Asia is most vulnerable because local economies are closely bound to the Chinese production and supply lines. Judging by the size of the expenditure of Chinese visitors relative to GDP on the tourism industry, popular destinations like Thailand, Vietnam and Singapore will be hit hardest. As China is the most important trading partner for Africa, there are fears about increasing possibility of transmission of coronavirus to the continent. African authorities confess to being ill-prepared for a major outbreak.

The recession generated due to this outbreak will be a real headwind for the global economy and will impact the most closely linked East and Southeast Asian economies heavily. Such developments in China, also, will have a knock-on impact on regional economies, including the ASEAN economies, through lower Chinese outbound tourism and other import demand, as well as supply chains disruptions. And there may be some issues for producers selling goods abroad with consumers becoming more reluctant to buy from China. Financial markets have also felt the effect of the health crisis. The Singaporean authorities added that the outbreak also resulted in a sharp drop in tourist arrivals, especially those from China, which had a severe impact on the tourism sector such as hotels, travel agents and cruise operators, and the aviation industry. On 17 February 2020, the Ministry of Trade and Industry (MTI) of Singapore downgraded its forecast of economic growth to between -0.5 and 1.5 percent-indicating a potential recession- due to a weakened outlook after coronavirus outbreak. In China, at least two economists at government-linked think-tanks have forecast a fall of up to one percentage point from China’s growth rate in the first quarter of 2020 and even for the year as a whole in recent weeks. A global recession is not yet on the cards, but the added uncertainty will at least limit investment and growth, which has already looked weak in all major economies. China’s government has been moving swiftly to counter the coronavirus’ economic impact and towards the measures to contain it. In the first week of February, the People’s Bank of China cut a key interest rate and pumped huge amounts of cash into markets to help offset the strain from banks and borrowers. Authorities have announced new tax breaks and subsidies designed to assist customers. Many experts expect the economy of Japan to experience another recession in the current quarter as the outbreak of China’s virus hurts exports, production and consumption by a sharp drop in overseas tourists.

The coronavirus outbreak may only have a small immediate impact on the U.S. economy but it has created additional instability and disrupted supply chains in Asia. Trying to estimate the possible economic global effects is early. Much will depend on how well the Chinese authorities will control the virus.

*** The author is currently pursuing Ph.D. as a Junior Research Fellow (JRF) in the Centre for Inner Asian Studies, School of International Studies in Jawaharlal Nehru University (New Delhi). She completed her B.A. (hons) and M.A. in Political Science, Jadavpur University (Kolkata) and her M.Phil. from Centre for Inner Asian Studies, SIS, JNU (New Delhi). ***

 118 total views,  2 views today