History proves that each time a virus is new, the world does not know how it would affect people, at least for a while. A same case has been making sudden headlines since the past few days, as it engulfs more and more people, especially in China, into its infectious spread.
We are discussing the coronavirus which has been temporarily named “2019-nCoV”. It’s deadly outbreak in China has been killing people and infecting them even beyond the Chinese border.
Let us understand its viciousness and the possible adverse impact on the Chinese economy-
The Coronavirus Plague
A group of viruses that cause diseases in both birds and mammals, coronavirus causes respiratory infections in humans. There is no vaccine or antiviral drug currently that has been medically and ethically approved for the prevention or treatment of the ill-impacts of the coronavirus.
According to the World Health Organisation (WHO), on 31 December 2019, the specialized agency of the United Nations (UN) was forewarned regarding several cases of pneumonia in Wuhan City, Hubei Province of China. What caught WHO’s eye was the fact that the virus ceased to match any other known virus.
A week later, Chinese authorities confirmed that the new virus raising concerns is a coronavirus (2019-nCoV), a family of viruses inclusive of the common cold, SARS and MERS.
More than 100 people are believed to be dead due to the Coronavirus infection, alone in China. Beyond the Chinese borders, thousands of people have been infected in more than a dozen countries. Few countries are still testing cases to confirm the spread in their respective regions as public health officials warn people to expect many more infections.
China has been locking down cities in a bid to stop the spread of the coronavirus. The United States has been evacuating its citizens from China on its government-chartered flights, while few Asian countries have been conducting laboratory tests to understand the plague’s presence on their lands.
Will Coronavirus Impact China and its Economy?
Before we dive into the probable impact of coronavirus in China and its economy, readers should be aware of the timing that the virus has hit the country- Lunar New Year. This is a prime vacation and travel time in China. With thousands of planned vacations, the actual travel scenario has slumped due to the plague’s spread and associated fear.
The outbreak of the deadly coronavirus has embarked fears of derailment in the stabilisation of the already bleak Chinese economy. The worry has been intensified as it has wiped out optimism from the nation after it recently signed the phase one US-China trade deal, which had lifted the nervousness around the prolonged trade war between the two largest economies of the world.
As a result of the coronavirus outbreak, national holidays have been extended and the central city of Wuhan, which is believed to be the epicentre of the outbreak, along with a few others, have been locked down. The country is exposed to suspended flights, restaurant closures and cancelled tours.
The panic generated by this new coronavirus is being widely compared to the fear and uncertainty at the peak of the 2003 SARS crisis, which apparently had caused a loss of almost $ 18 billion!
Let’s scan through the possible adverse impacts of the coronavirus on China and its economy in the near future-
- Public transportation and tourism are expected to undergo a downturn with millions of people locked down across cities.
- China is currently the manufacturing hub of the world. But industrial production will also be impacted, consequently leading to commodity exporters facing a biggest hit.
- China – presenting a leading demand for world commodities, is anticipated to put pressure on global commodity prices and demand.
- Entertainment business including theme parks, movie theatres and even restaurant chains will face a setback with workers being evacuated/ locked down.
- Wuhan, the most impacted city, is economically important to China as a whole and makes up for over 1 percent of China’s gross domestic product (GDP) alone. Coronavirus could end up dimming the prospects of this vital region.
- Consumption spending has been a vital growth driver for the Chinese economy in the past few years. The plague could have a negative effect on Chinese consumer sentiment and is being looked upon as triggering near-term risk by market experts.
- Few media reports state that the coronavirus outbreak may impact China's economic growth by up to 1 per cent.
- With control of the virus being the top priority for China, there could be a lower demand for services and disruptions in production, investment and exports. This is likely to lead to unemployment and a deteriorating financial and fiscal environment, at least in the short and medium term.
Is there a Global Fear to the Slumped Chinese Economy?
Analysts across the world are analysing the slightest fluctuation in the GDP growth rate projection of the Chinese economy to affect the global slowdown. This is because firstly, China is the second biggest economy of the world and secondly, the global markets operate in a chain.
The SARS outbreak, which occurred over a decade ago, impacted China and the world at a time when the world was not as connected through its markets as it is now. With the current rampant international trade model and stock exchanges garnering business traction, the impact of coronavirus outbreak is already being felt across the globe-
- China's Shenzhen and Shanghai composite stock market indexes have been falling.
- The Japan, India, South Korea, the US and Europe stock exchanges have witnessed similar sentiments.
- Experts state that full scale global and human impact of the coronavirus impact would be much greater than the SARS outbreak.
The Flip Side- Possibility of a Limited Economic Impact?
Now that we understand the adverse side of the ongoing epidemic in China and its impact on the economy, industry and daily lives of Chinese residents, let us acquaint you to a silver lining.
Few market experts opine that the coronavirus will be controlled in a few weeks with the Chinese authorities and the WHO declaring the epidemic to be under control by around April 2020.
If this timeline is met, there would be a limited negative economic impact on China’s growth rate in 2020 (even though the first quarter impact could be relatively huge). Let us look at a few reasons that is propelling this optimism amid this consensus-
- Unlike the times of the SARS outbreak, China is now on top of the internet commerce age, with customers increasingly doing their shopping online.
- Citizens can set aside a holiday travel budget in the near future.
- The virus was detected and is impacting the economy in a holiday phase with planned holiday closures for government offices and schools leaving less ground and impact for extended holidays.
- Reports indicate that the Wuhan coronavirus is less deadly than SARS even though its transmission has been fast initially.
- Aggressive measures to isolate patients from the rest of the population, can help overcome the crisis soon.
- The optimism pinpointing to the signed phase one trade deal with the US continues to be a ray of hope.
The coronavirus outbreak is justifiably causing an alarm, but from an economic perspective, only time will denote its adverse impact.
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With the pandemic continuing to affect the globe, healthcare companies are evaluating their lead compounds for COVID-19 treatment. Future revenue for these stocks depends on the probability of launching an approved treatment in the market.