UPDATE 16 March 2020: As there has been a lot of interest in this article and the COVID-19 economic impacts, but the originally article is now a bit dated, I am providing here some useful articles that discuss various aspects of the global economic fallout of the virus outbreak. I will keep updating this list:

The global macroeconomic impacts of COVID-19: Seven scenarios – https://www.brookings.edu/research/the-global-macroeconomic-impacts-of-covid-19-seven-scenarios/

One Simple Idea That Explains Why the Economy Is in Great Danger – https://www.nytimes.com/2020/03/17/upshot/coronavirus-economy-crisis-demand-shock.html?action=click&module=Top%20Stories&pgtype=Homepage 

The Pandemic Stress Test – https://www.project-syndicate.org/commentary/covid19-economic-weaknesses-by-raghuram-rajan-2020-03

A recession is unlikely but not impossible: Covid-19 infects the world economy https://www.economist.com/finance-and-economics/2020/03/05/a-recession-is-unlikely-but-not-impossible

The Economic Consequences of the Coronavirus – https://www.project-syndicate.org/commentary/economic-consequences-of-coronavirus-for-china-and-asia-by-akira-kawamoto-2020-02

With unprecedented force and speed, a global recession is likely taking hold – https://www.washingtonpost.com/business/2020/03/14/recession-economy-coronavirus-jobs/#click=https://t.co/U7U9sNHkey

Is anyone in charge? Unlike in 2008, there’s no plan to stabilize the global economy – https://www.marketwatch.com/story/is-anyone-in-charge-unlike-in-2008-theres-no-unified-response-to-stabilize-the-global-economy-2020-03-11

Why COVID-19 is likely to change globalization, not reverse it – https://www.csmonitor.com/layout/set/amphtml/Business/2020/0309/Why-COVID-19-is-likely-to-change-globalization-not-reverse-it

Companies’ supply chains vulnerable to coronavirus shocks – https://www.ft.com/content/be05b46a-5fa9-11ea-b0ab-339c2307bcd4

Coronavirus: China’s economy suffers dramatic collapse in January, February in warning to rest of world – https://www.scmp.com/economy/china-economy/article/3075314/coronavirus-caused-dramatic-collapse-chinas-economy-warning

VIDEO – Coronavirus: Is the dramatic collapse of China’s economy a warning for the rest of world? – https://www.youtube.com/watch?v=Yn1nhLGHrWc&feature=emb_logo

PODCAST – Economics in the time of Covid-19 – https://voxeu.org/vox-talks/economics-time-covid-19

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ORIGINAL POSTED on 10th February 2020

There is plenty of speculation and scenario-building around what the impact of the Novel Coronavirus outbreak will be for the global economy. Here’s my own, albeit quick, take. Unlike when the SARS (SARS-CoV) epidemic struck the world, China is now much more integrated with the global economy and this will make the economic fallout of the Novel Coronavirus more pronounced. In fact, SARS struck just a few years after China joined the World Trade Organisation and had only just begun its integration with the global economy. Whereas today, when the 2019 Novel Coronavirus (2019-nCoV) is hitting the world, China is nearly 20 years into its global integration journey and is a huge part of global supply chains, of labour and capital markets. China now accounts for over 17% of global GDP, compared to less than 5% when the SARS outbreak hit. 

More Chinese are travelling around the world today than back in 2002-3, when SARS affected China. Chinese outbound travel is growing at 4-6% annually, and the Chinese aviation market is set to surpass the US as the world’s largest aviation market. Over 81 million overseas trips were made by Chinese citizens during the first half of 2019 alone, up 14% year-on-year. For tourism-dependent economies like Sri Lanka and Maldives, Chinese visitors represent a large share of total tourist arrivals – often in the top 5 – and is rapidly growing. 

The regions of China that are most affected by the 2019-nCoV are also the most important in terms of the country’s economic growth. Provinces affected by the partial or full shutdown imposed by the state, account for around 69% of Chinese Gross Domestic Product (GDP). These are the regions that have been asked to stay shut for an extra one week, following the Lunar New Year, affected not only restaurants, shops and small businesses, but most crucially, factories and industrial establishments. China’s factories are a key link in global production networks, with China-linked supply chains playing a vital role in everything from electronics to apparels.

Wuhan itself is one of China’s most critical trade and logistics hubs. In fact, some of the world’s leading automobile parts and components manufacturers – like Germany’s Bosch GmbH – are located here. Honda and Nissan also have large plants in Wuhan, serving their international supply chains.

China’s economic growth is likely to slow to sub 5% in Q1 2020, with a muted Lunar New Year economic activity, dampened consumer sentiment (and impact on retail and wholesale trade), and slow manufacturing and services growth. Hong Kong, South Korea and Vietnam will perhaps be the neighbouring economies most impacted by a Chinese slowdown – both through the supply chain disruption channel as well as the tourism and travel channel. Any slowdown in the Chinese economy will also impact those economies that supply raw materials to China, most notably Australia and Brazil. A McKinsey report which analyzed 186 countries found China to be the largest export destination for 33 nations and the largest source of imports for 65. So clearly, China is more systematically important to the global economy today, than when the SARS virus struck.

Meanwhile, countries like Sri Lanka may benefit to some extent, with likely shifts in production orders for apparels from Chinese factories to Sri Lankan factories. Those apparel manufacturers able to respond in a nimble, agile, reliable and cost-effective manner stand to gain, as do those who have supply chain linkages to raw material bases outside of China; for instance, sourcing fabrics from India (both Brandix and TeeJay have Indian plants). Beyond gaining from these immediate shifts on account of nCoV, there may be some sustained shifts where manufacturers become more resolute about diversifying production bases, as a risk mitigation measure. Already, as was pointed out in a previous article, manufacturers had already begun this ‘supply chain re-drawing’ on account of the US-China trade war.

The magnitude of the impact of 2019-nCoV on the China economy, the neighbouring economies most integrated with China, as well as the world at large, will hinge crucially on how quickly the virus is contained, how quickly the infection rates drop, and how quickly the mortality rate falls. As winter wanes, and China and the northern hemisphere warm up over the next few weeks and months, scientists and doctors say the climate for the virus becomes less conducive and infection rates should slow. While the economic impact of 2019-nCoV may be more pronounced than SARS-CoV, one can hope that it may not be as prolonged.

 

cover image courtesy AFP va Getty Images, sourced from Lowy Institute