APD | COVID-19 has great impacts on Asian and world economy

By APD writer Alice

The acute respiratory disease caused by a new strain of coronavirus (COVID-19) is having great impacts on the Asian and world economy as China, which is being hardest hit by the virus, now accounts for 17 percent of global GDP.

Even though the economic size of China is eight times higher than that in 2003 when the country fought the severe acute respiratory syndrome (SARS), the world’s second largest economy is still more vulnerable to the novel coronavirus outbreak due to negative domestic and global economic conditions.

After the closure of Wuhan city, together with restrictions on travel within and out of the city, the Chinese government have taken similar measures in at least 17 other cities, affecting about 50 million people.

When it comes to the impact on the economy, the virus itself does not have great impact but the reaction to the disease. Anxiety and panic have great influence on consumer and business psychology.

The economic impact has been visible so far, reflected in the widespread closure of transport systems, restaurants, shopping centres, offices, schools and entertainment areas. Even major streets in several cities are deserted. Many international airlines have suspended or limited flights to and from mainland China.

Besides tourism, which was affected first, China production and manufacturing sector has also been impacted as factories were forced to shut down due to material supplies were interrupted and many workers, including those from other regions of China, could not return to work due to travel bans.

According to The Guardian, Southeast Asia is one of the regions facing the highest risk as it has close relations with the giant China.

Next, Japan, despite being richer, is facing big risks as China is a large consumer of Japanese industrial machinery, automobiles, trucks and high-tech consumer goods. A huge volume of spare parts produced by China are exported to Japan and millions of Chinese tourists come to Japan each year.

The Australian economy is also closely linked with China. Australian Prime Minister Scott Marrison warned that the COVID-19 epidemic will cause great pressure on his country’s economy. Many universities in Australia which receive a large number of Chinese students will be affected.

Not only Asian and Australian economies, the slowdown of the Chinese economy caused by COVID-19 is forecast to affect England, the US and EU countries.

Governor of the Bank of England Mark Carney said England’s tourist attractions favoured by Chinese tourists such as Bicester shopping village in Oxfordshire may be seriously impacted as England will limit inflows of Chinese visitors due to fear of COVID-19 spread.

A local newspaper of Germany recently ran an article stating that the German economy will be heavily influenced by the novel coronavirus outbreak while the EU Reporter News Agency quoted Chinese Ambassador to Belgium Cao Zhongming as saying that changes in the Chinese economy will affect Europe but the impacts are temporary and under control. After the epidemic ends, cooperation between China and the EU will continue to develop as before.

Meanwhile, US Secretary of Treasure Steven T. Mnuchin expressed his optimism that the COVID-19 outbreak’s impacts on the US economy will not continue after 2020.

The impacts of COVID-19 are different in each country, but those on the whole global economy are obviously great, said experts. Wuhan city of Hubei province, where the virus was originated, is not only a big city with a population of dozens of millions but also an important part of the manufacturing chain of China. It is home to many large-scale industrial clusters in the fields of electronics, automobiles and pharmaceuticals. If the manufacturing industry of Wuhan is suspended, downstream companies in the industrial chain outside Hubei may face an interruption in supply and production.

The Guardian pointed out that many global firms rely on Chinese suppliers. For example, among 800 suppliers for Apple, 290 are from China. China also makes up 9 percent of global television ouput. Half of production facilities of Wuhan are related to auto industry and 25 percent involve in other technology supplies in the region. Leaders of carmakers in Europe and the US warned that they will lack spare part supplies in the next several weeks. Due to a lack of made-in-China components, Hyundai Motors suspended its operations in South Korea for a number of days.

However, the International Monetary Fund (IMF) said that it is too early to calculate the impacts of the coronavirus outbreak on the Chinese economy and the global economy as a whole. IMF Managing Director Kristalina Georgieva said she hopes the impacts will be V shaped, meaning that the economy will recover rapidly in a short time.

Some private economic organisations have delivered their projections. Standard & Poor’s predicted that consumer spending, accounting for more than half of China’s GDP, decreased 10 percent, which will make the country’s GDP drop 1.2 percentage points. As such, China’s GDP expansion may be under 5 percent this year, lower than the 6 percent growth set by Beijing.

Mo Ji, chief economist at the UK’s Alliance Bernstein investment management and research firm, said China’s GDP will lose 0.8 percentage point if the epidemic is controlled in 3 months and 0.9 percentage points if 9 months. Either way, the Chinese economy is forecast to face difficulties this year and the rest of the world, especially Asia, will also experience similar difficulties.

By 7pm on February 17, there were 71,440 confirmed cases of COVID-19 infection in the world, 70,552 of them were in mainland China. As many as 1,775 people died of the disease, including 1,770 in mainland China, one in Hong Kong, one in the Philippines, one in Taiwan, one in Japan and one in France.

(ASIA PACIFIC DAILY)