How will the coronavirus affect the world economy?

The coronavirus epidemic is spreading further in China and Chinese experts believe that it could peak in 10 to 14 days. Around 45 million people in the Chinese province of Wuhan are cut off from the outside world. In order to curb the spread of the virus, Beijing has extended the Chinese New Year holiday, and pushed back the opening of the stock markets. When it finally opened on Monday, stock prices crashed. They, however, stabilized again on Tuesday.

As a precaution, Beijing had given the financial system an unusually high injection of 1.2 trillion yuan (€156 billion, $171 billion) to keep the domestic money market and banking system functioning. In addition, import duties on goods that are important in the fight against the disease were eased.

Closed offices and factories

But it’s not only the stock markets that have been hit. Chinese consumption has also plummeted as a result of the outbreak. Large New Year’s events were canceled; tourist attractions and cinemas were closed. The doors remain closed at around 2,000 Starbucks, hundreds of McDonald’s restaurants, 130 Uniqlo shops and at all 30 Ikea stores.

The travel industry has also been badly affected. Several countries issued travel warnings about China; some airlines even suspended flights to China. Lufthansa and its subsidiaries Swiss and Austrian Airlines canceled their connections to and from Beijing until February 29. The Chinese authorities urged its own population to postpone travel abroad and prohibited domestic travel groups.

At the post office in Wuhan parcels are disinfected before they go out

Most factories and offices will remain closed this week. Several carmakers, including Volkswagen, BMW, Volvo, Toyota and Tesla, extended their annual New Year production breaks. Additionally, China’s largest oil refinery cut production by around 600,000 barrels a day due to shrinking fuel demand.

Learning from SARS

When SARS hit China 17 years ago, domestic trade suffered significantly and stock markets fell. However, the global economy is now much more interconnected and the Chinese economy is much more important. At the time China’s share of the world economy was only around 5%, today it is more than 16%.

Now the world’s second-largest economy is an important export market for German products, an important production location for German industrial companies and the starting point for many global supply chains.

In Wuhan, new emergency hospitals are going up quickly to treat patients

The ifo Institute’s economic expert Timo Wollmershäuser believes that “the economic consequences will be greater than the SARS epidemic.” That crisis, which lasted 6 months, cost China about 1% growth in gross domestic product (GDP), a number so small that it was hardly reflected in the German figures. “Since then, the country’s economic importance has grown, the infection rate is greater and the Chinese government has reacted harder,” said Wollmershäuser.

Too early for a true analysis

Many experts believe that it is too early to talk about the extent of economic consequences. Jens Hildebrandt, the director of the German Chamber of Commerce in Beijing, told DW that the country is at a practical standstill anyhow because of the Chinese New Year and spring festivities. “All factories close for three to four weeks,” he added. Thus, even under normal circumstances, the entire economy — except for the important tourism industry — would be offline.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Pneumonia-like virus hits Wuhan

  On December 31, 2019, China notifies the World Health Organization of a string of respiratory infections in the city of Wuhan, home to some 11 million people. The root virus is unknown and disease experts around the world begin working to identify it. The strain is traced to a seafood market in the city, which is quickly shut down. Some 40 people are initially reported to be infected.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  New strain of coronavirus identified

  Researchers initially rule out the SARS virus, the deadly respiratory illness that originated in China in 2002, killing nearly 800 people worldwide. On January 7, Chinese scientists announce they’ve identified a new virus. Like SARS and the common cold, it is in the coronavirus family. It is temporarily named 2019-nCoV. Symptoms include fever, coughing, difficulty breathing, and pneumonia.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  First death in China

  On January 11, China announces the first death from the coronavirus — a 61-year-old man, who had shopped at the Wuhan market, dies from complications with pneumonia.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Virus reaches neighboring countries

  In the following days, countries such as Thailand and Japan begin to report cases of infections in people who had visited the same Wuhan market. In China, a second fatality is confirmed in the city. By January 20, three people have died in China and more than 200 are infected.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Transmission unclear

  Through mid-January, scientists scramble to find out how the illness is being spread among people. Coronaviruses are zoonotic, meaning they are transmitted from animals to people. Some coronaviruses can be transmitted by coughing and sneezing. Airports around the world begin screening passengers arriving from China. On January 20, officials confirm the virus can be passed directly between humans.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Millions under lockdown

  China places Wuhan on quarantine on January 23 in an attempt to limit the spread of the virus. Transportation is suspended and workers attempt to quickly build a new hospital to treat infected patients, which total over 830 by January 24, as the death toll climbs to 26. Officials eventually extend the lockdown to 13 other cities, affecting at least 36 million people.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  A global health emergency?

  More and more cases are confirmed outside of China, including in South Korea, the US, Nepal, Thailand, Hong Kong, Singapore, Malaysia and Taiwan. As the number of infections rises, the World Health Organization on January 23 determines that it’s “too early” to declare a global public health emergency.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Coronavirus reaches Europe

  On January 24, French authorities confirm three cases of the new coronavirus within its borders, marking the disease’s first appearance in Europe. Hours later, Australia confirms four people have been infected with the respiratory virus.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Lunar New Year holiday extended

  The Chinese Lunar New Year begins with subdued festivities on January 25. Officials cancel many major events in a bid to contain the outbreak, as millions of Chinese travel and take part in public celebrations. By late January, 17 Chinese cities, home to more than 50 million people, are in lockdown. Lunar New Year holidays are extended by three days to limit population flows.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Borders with Mongolia, Hong Kong, eastern Russia close

  Cambodia confirms its first case, while Mongolia shuts its border with China for cars and Russia closes its borders in three regions in the Far East. The cost to global tourism is put in the billions and oil prices also plummet. The death toll rises to 41, with over 1,300 infected worldwide — mostly in China. Scientists hope to have the first coronavirus vaccines ready within three months.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Germany braces for virus

  On January 27, German Foreign Minister Heiko Maas says Germany is considering evacuating German nationals from Wuhan. There are no reported cases in Germany yet but officials are preparing to fight the virus. German researchers in Marburg are part of international efforts to work on a possible vaccine for the coronavirus. The death toll in China reaches 81, with 2,700 affected worldwide.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  First cases confirmed in Germany

  On January 27, Germany announces its first known case of the virus — a 33-year-old in Bavaria who contracted it during a workplace training with a visiting Chinese colleague. He is put under quarantine and observation at a Munich hospital. The following day, three of his colleagues are confirmed infected. The death toll in China reaches 132, with around 6,000 infected worldwide.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  International evacuations begin

  On January 28, Japan and the US are the first countries to evacuate some of their citizens from Wuhan. Four of the Japanese passengers are taken to the hospital with fevers on arrival. Australia and New Zealand say they will also send planes to bring their citizens home. Global cases mount to nearly 6,000 infections, more than the 2002-03 SARS outbreak that killed roughly 800 people.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  WHO declares global health emergency

  On January 30, the UN’s World Health Organization (WHO) declared coronavirus a public health emergency of international concern in a bid to protect countries with “weaker health systems.” However, WHO Secretary-General Tedros Adhanom Ghebreyesus did not recommend trade and travel restrictions, saying these would be “an unnecessary disruption.”

• Coronavirus: Timeline of the deadly virus in China and worldwide

  Wuhan evacuees arrive in Germany

  On February 1, 124 people including 102 Germans arrived at Frankfurt airport after being evacuated from Wuhan, the epicenter of the virus, on a German Air Force flight. The evacuees were taken to military barracks in Germersheim where they were set to be quarantined for 14 days. At least two of the evacuees were said to be infected with the new virus.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  First death outside China

  The first death linked to the novel coronavirus outside of China was reported in the Philippines on February 2. A 44-year-old Chinese man had traveled from Wuhan to Manila before falling ill and being taken to hospital, where he later died of pneumonia.

• Coronavirus: Timeline of the deadly virus in China and worldwide

  New coronavirus hospital in just 10 days

  The Huoshenshan (Fire God Mountain) Hospital in Wuhan, built in just over a week, opened on February 3. The hospital aimed to use a mix of both Western and traditional Chinese medicine to treat those infected with the coronavirus.

  Author: Cristina Burack, Elliot Douglas, Dave Raish, Kate Martyr

How the coronavirus outbreak is impacting employment and ongoing production will only become apparent from next or the week after next, according to Hildebrandt, since the Chinese government has extended the holidays until February 2 and in some cities until February 9.

The reason is that a large part of the migrant workers come from the region around Wuhan, which is almost completely quarantined, says Hildebrandt. Only in the coming week will it become clear how many workers will return to the main production locations in the Shanghai and Beijing areas and in southern China, and to what extent production and thus the international supply chains will be affected by the virus.

Hitting the supply chain

“We see no signs as of now that supply chains will be completely disrupted, even if there are delays,” said Gerhard Wolf, head of foreign trade at the Association for Wholesale, Foreign Trade and Services (BGA). His credo: No need to panic.

Currently Germany’s VW Group generates about 40% of its sales with China

So far, there is no trace of panic among German companies, says Hildebrandt from the German Chamber of Commerce in Beijing. “At the moment they are acting rather calmly, though plans are being drawn up for how to deal with the situation.”

The German Institute for Economic Research (DIW) is also taking a careful approach. “It is still far too early to be able to carry out a serious analysis of the economic effects of the coronavirus,” said DIW President Marcel Fratzscher. “If the spread of the coronavirus in China and worldwide can be successfully contained, then the economic costs should be limited and be limited to a short-term loss of production in China.”

Stopping the supply chain

However, should the production stops in China last longer, the international supply chains would be at risk, warns Klaus-Jürgen Gern from the Kiel Institute for the World Economy.

“China is significant as a supplier to the rest of the world,” said Gern. A long standstill could interrupt supply chains in the chemical, automotive, textile and electronics industries, warn Allianz economists. International companies would no longer get the parts they need and would have to find other suppliers or shut down production.

One that has already been hit is the South Korean manufacturer Hyundai Motor. The company announced on Tuesday it would suspend all production in South Korea later this week. The reason for the suspension is that the cable harnesses required for production, which Hyundai usually gets from China, are just not coming.

Article source: https://www.dw.com/en/how-will-the-coronavirus-affect-the-world-economy/a-52253833?maca=en-rss-en-bus-2091-xml-atom