How Hard Will The Coronavirus Hit The World Economy?

The new Coronavirus epidemic which started in the Chinese city of Wuhan and has spread to 16 countries so far is expected to trigger a widespread global economic crisis. The Wuhan Coronavirus (2019-nCoV) is a new strain of Coronavirus with symptoms similar to those of SARS (Severe Acute Respiratory Syndrome), which hit the world in 2002-2003. Symptoms include a cough, runny nose, and fever. Despite experts claiming that the new Coronavirusbelieved to be transmitted from wild animals to humansis not as deadly as SARS, the new virus has infected more than 4,500 people globally in less than a month.

The Coronavirus Economic Impact So Far

On Monday (January 27), the Pan-Europe STOXX 600 dropped 2.3 percent at the end of the session, while Japan’s Nikkei 225 slid more than 2 percent, and the U.S Dow Futures lost 400 points in its opening session on Monday. The Coronavirus outbreakwhich has claimed more than 130 lives in Chinahas hit the oil prices as well. On January 27, Brent oil prices fell 2.13 percent to $ 59.4 per barrel while the West Texas Intermediate price was cut 2.33 percent to $52.95 per barrel, the Refinitiv data showed.

China’s Economy Is Hardest Hit

Chinese economist Huang Yiping wrote in an article quoted by South China Morning Post that China’s growth in 2019 fell significantly from 6.4 percent in the first quarter to 6.0 percent in the third quarter. He estimated that in the last year’s fourth quarter it would drop below 6.0 percent. Yiping added that the fourth quarter in 2019 showed an improved performance. However, the epidemic will likely ruin that potential growth. The China-focused Plenum Research Group said also reported that the mainland’s growth will slow four percentage points from the first quarter due to the extended Lunar New Year’s holiday caused by the epidemic.

More Countries Are In Economic Danger From Coronavirus

The slowdown in China’s growth will also significantly affect Indonesia’s economy, due to both countries’ close economic cooperation. China is one of the largest investors in Indonesia. According to Indonesia’s Investment Coordinating Agency (BKPM) data, China disbursed $ 3.31 billion in investment in Indonesia from January to September 2019, making it the country with the third-largest investment realization in Indonesia.

The new Coronavirus has also hit the tourism industry in Indonesia and other countries such as Japan and Thailand. Japan’s travel agent Kamome, which is focused on dealing with Chinese tourists, has received 20,000 cancellations for the company’s tour package from Chinese tourists as CNN reported. Japan received 9.6 million Chinese tourists in 2019.

The epidemic has also ruined Thailand’s growth supported by the tourism sector. Shares of international airport operators in Thailand (Airports of Thailand) fell 5.9 percent, the highest since 2016.

Indonesia’s Minister of Transportation Budi Karya Sumadi announced that national air carriers will be banned from traveling to and from Wuhan, the starting point of the infection, adding that the ban will be lifted depending on the situation there as Antaranews reported quoted from Detik.

Case Study: The Economic Impact Of SARS And The New Coronavirus

The new Coronavirus epidemic is reminiscent of the SARS outbreak that infected 8,000 people globally and killed 800. Denmark-based bank Danske Bank compared the economic impact of SARS and the likely impact of the Coronavirus on China’s economy. The bank stated that SARS hit the retail sector, but the impact was short-lived as the economy recovered after three or four months. The retail industry slowed down from 10 percent to 4.5 percent in 2003 during the SARS outbreak.

In contrast, the Coronavirus will likely hit the service sector more than retail, which accounts for 54 percent of China’s growth, up from 42 percent 17 years ago. The tendency to shop online may mitigate losses from the service sector, the bank estimated. U.K-based Barclays echoed the prediction that the outbreak’s impact will only be temporary, adding that the retail and the transportation sectors are likely to be the hardest hit.

“Relative to the SARS outbreak, we think the shock to retail sales this time may not be as large, given online sales are more prevalent nowadays and this would not be significantly affected versus bricks and mortar shops,” explained Jian Chang, an economist with Barclays in Hong Kong.