Features Coronavirus: Diagnosis of The World Economy

CORONAVIRUS: DIAGNOSIS OF THE WORLD ECONOMY

By Abigail Davis

The outbreak of coronavirus disease (COVID-19) was first reported from Wuhan, China, on 31 December 2019. As of the 2/06/2020 the death toll is approximately 380,000. However, the following analysis was written on the 19th of February, where the death toll passed 2,000 with all but six of them in mainland China.

Many economists are looking closely at the historical precedent from the SARS virus spread in 2003, but the coronavirus has already surpassed the total number of SARS cases in just two months. Infectious disease experts expect the outbreak to last for several months yet with tens of thousands afflicted before it runs its course (World Economic Forum 2020). While the outbreak of the coronavirus only occurred two months ago, the economic impacts are looming over the world. These impacts include slower economic growth, disruption to commerce, the impact on tourism and the question that’s been brought up from this, how prepared are we for epidemics or pandemics?

Morgan Stanley reports China’s first-quarter growth could fall as low as 3.5%, if the spread of the outbreak is not contained fast enough for factory production to resume to normal levels (Lee 2020). Manufacturing activities have been disrupted as authorities shut down cities in China in an attempt to contain the spread of the coronavirus. China is the world’s second largest economy and is home to major parts of global supply networks that produce goods from textile to mobile phones and cars. Therefore, an economic fallout from coronavirus also threatens global growth.

China is central to a diverse range of global supply chains: many of the world’s raw materials travel to China before being turned into a manufactured product. Therefore, global companies rely on supplies based in China. Due to the coronavirus there has been a shortage of products and parts from China which is having a huge impact on the whole of the world. Apple has reported it would not meet quarterly revenue expectations due to limited iPhone production and Chinese demand (Rabouin 2020). According to DHL’s Resilience 360 index, 50% of all manufacturing in Wuhan is related to the automotive industry and 25% to technology supplies from the region. This explains why automotive executives in Europe and the US are warning they are just weeks away from shortages.

China is central to a diverse range of global supply chains: many of the world’s raw materials travel to China before being turned into a manufactured product. Therefore, global companies rely on supplies based in China.

With Hyundai already shutting down operations in South Korea because of a lack of parts from China (Inman 2020). While entire supply chains – automotive, electronics, industrial – are facing risks, one of the main sectors hit early by the outbreak were the travel and tourism industry.

In the current day tourism is a huge global business that accounts for 10.4 per cent of global Gross Domestic Product (GDP) and 10 per cent of global employment (World Economic Forum 2020). However, the Impact on travel to and from China due to the coronavirus has been devastating. Airlines, such as Air Canada, have cancelled all flights or significantly reduced the number of flights in and out of China. Russia closed its land border to passenger travel with China and Hong Kong (Pham and Ziady 2020). With this global airline revenues are expected to fall by $4-5 billion in the first quarter of 2020 as a result of flight cancellations, according to a report from the UN’s International Civil Aviation Organization (ICAO, 2020). The market response to travel restrictions to and from China has been swift, with share prices of major airlines, cruise lines and tourism companies dropping several percentage points (CBC, 2020).

With this global airline revenues are expected to fall by $4-5 billion in the first quarter of 2020 as a result of flight cancellations, according to a report from the UN’s International Civil Aviation Organization (ICAO, 2020).

Figure 1: 2019 GLOBAL HEALTH SECURITY INDEX, STATISTA

The study which used 195 countries concluded national health security to be “fundamentally weak”, no nation is prepared to handle an epidemic or pandemic (World Economic Forum 2020).

Despite all these economic concerns, the coronavirus is most importantly a public health concern. The outbreak has brought an important question into sharp focus: just how prepared are we for a pandemic? The Global Health Security Index Finds No Country Is Prepared for Epidemics or Pandemics. A report finds weaknesses in countries ability to prevent, detect and respond to significant disease outbreaks. The average overall 2019 GHS Index score is 40.2 out of a possible score of 100, with 100 representing the highest level of preparedness. Even among the 60 highincome countries assessed, the average score is 51.9 (GHS Index, 2019) China which is at the centre of the coronavirus outbreak scored 48.2.

The study which used 195 countries concluded national health security to be “fundamentally weak”, no nation is prepared to handle an epidemic or pandemic (World Economic Forum 2020). The report suggests that the international community should work together to tackle biological threats, with a focus on financing and emergency response. This is emphasised especially as globalisation brings increasing trade, travel and population density and we are entering a new era in the risk of epidemic events.

Globalisation has an important role to play, for instance as we compare the coronavirus to SARs, the coronavirus is spreading at a rate six times faster than SARs, mostly through human contact between people not yet showing symptoms. China is a much more open economy than it was in 2002 (SARSs outbreak), and so the disruption is expected to be greater due to the complex integrated supply chains and tourism mentioned above.

On reflection we can now see that COVID-19 is now a global pandemic, with much of the above analysis occurring, confirming that no country has been truly prepared for a pandemic. We have seen a near shut down in the UK economy due to the lockdown with GDP in volume terms estimated to have fallen by 2.0% in Quarter 1 2020, the largest fall since Quarter 4 2008 (ONS, 2020). This negative growth has occurred despite Government schemes such as the furlough scheme, with many firms such as the aviation industry making staff redundant.

China is a much more open economy than it was in 2002 (SARSs outbreak), and so the disruption is expected to be greater due to the complex integrated supply chains and tourism ...

References

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