How the coronavirus in the “factory of the world” struck down the global business – part 1


The 2003 epidemic of the SARS coronavirus made 8098 people ill and killed 774 people in 17 countries, which makes up a 9.6% mortality rate and renders it considerably more deadly than this year’s coronavirus COVID-19 with its 2.8% (for now).

Just like SARS, COVID-19 first appeared in China and then spread globally. Just like SARS, the new coronavirus from Wuhan affects the global economy, but the similarities stop here.

At the time when SARS was infecting and killing people, the Chinese economy played a much smaller role on the global scene (in 2003 it constituted 4% of the global GDP). In 2020, however, China’s economy is the second largest after that of the USA and contributes 16.3% to the global GDP.

In those 17 years China became the “factory of the world” and exports ready products and components for numerous industries: electronics, pharmaceutical, heavy machinery, automotive and many others. In this globalised world, a massive number of companies – big and small – rely China to produce everything.

At the same time, the country is one of the largest consumers of natural resources, foodstuffs, fuels and luxurious goods. And even though the epidemics usually do not have a long-term effect on the economy, considering the might of China, it is small surprise that the ongoing COVID-19 epidemic already shakes the global industry. The questions how long will it last and how many people will it infect and kill, quite understandably start to worry investors and analysts.

The concerns are both for the human cost and for the economy and the first signs are already present. Some analysts already downgraded their forecasts for the Chinese economy in 2020. Goldman Sachs expects growth of 5.5%, while Oxford Economics expects 5.6%, but the crisis reaches far beyond China’s borders.


The Asian countries

Considering the geographical proximity, it is logical that the Asian countries would become the first victims – the first infected outside of China are there and, within a few weeks after the start of the epidemic, anxiety gripped the global business.

Last week, the world’s third-largest economy – Japan – issued data for the last quarter of 2019 showing that its economy has shrunk by 6.3% due to typhoons, increased taxes and dropping exports for China, which is Japan’s largest trading partner. The forecasts are for a continuing drop, as the coronavirus directly affects the tourist industry which heavily relies on Chinese visitors. Besides, Japan itself is affected by the coronavirus and has a significant number of infections outside of China. This can further affect tourism. There are also rising concerns regarding the upcoming Summer Olympics in Tokyo. If the collapse continues in Q1 2020, Japan will fall into recession, according to some analysts who believe that the coronavirus may shave off 0.2% of this year’s economic growth.

Also last week, the government of Singapore, which also has a significant number of infected people, downgraded its economic forecasts to a drop by -0.5% or a minimal growth of 1.5%. The earlier projections were for a growth of 0.5%-2.5%. A statement of Singapore’s Ministry of Trade and Industry (MTI), quoted by CNBC, notes that the export-oriented sectors like production and bulk exports will suffer from the weak demand in one of the major markets – China. Tourism and transport are already “badly affected” from the decreasing numbers of Chinese tourists, while the domestic consumption will probably weaken, as people will avoid leaving home to shop in the malls and dine out. “As the COVID-19 situation is still evolving, MTI will continue to monitor developments and their impact on the Singapore economy closely,” said the ministry.

Meanwhile, the government undertook measures to help the affected sectors, while prime minister Lee Hsien Loong noted that the effects from the novel coronavirus will be “significant”. Last Tuesday Singapore’s finance minister Heng Swee Keat presented a financial package worth $4.6 bln to support the businesses, the healthcare sector and the households affected by the coronavirus.

Similar measures were announced by Malaysia, where the finance ministry announced a stimulus package for the affected sectors – retail, tourism and aviation.

India’s economy may also be affected. According to Economic Times, China is India’s largest trading partner and the imports from China far exceed the exports. India relies on electronics, machine components, automobile parts, organic chemicals and pharmacological substances from China. “If prolonged, it could have a bearing on India’s imports as finding substitutes in the near term could be a challenge,” warns a report by CARE Ratings, quoted by Economic Times.

Despite the fact that the epidemic in China directly influences the neighbouring countries, in reality the impact reaches far beyond their borders and affects entire industries across the world. More about them – read in the next part of our article.


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