China’s economic growth expected to fall from 6% to 4.5% in the first quarter of 2020.

The coronavirus that spread from a seafood market in Wuhan, on January 30, 2020, has been declared a public health emergency by the World Health Organization, a statement based on 7,711 confirmed and 12,167 suspected cases in China at the time. Now, as of 18 February 2020, the total number of confirmed cases is 72,530 with further 6,242 suspected cases.

However, the problems are not limited to the sanitary side, but its effects on the economy are evident too, in fact, Oxford Economics has warned that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1tn in lost income.

For example, on February 17, Apple told its shareholders that it would fail to meet its quarterly revenue target because of the “temporarily constrained” supply of iPhones and a dramatic drop in Chinese spending during the virus crisis.

Effects on the Chinese economy

The effects of the virus on the Chinese economy, the second largest economy in the world, are for obvious reasons the most evident, at least in the first place. 

In fact, a group of economists polled by Reuters between 7–13 February said they expected China’s economic growth to slump to 4.5% in the first quarter of 2020, down from 6% in the previous quarter. This would be the slowest pace of the Chinese economy since the 2008–2009 Global financial crisis.

China’s economy predicted to grow at its slowest rate since the financial crisis. — source: Reuters

However, after an initial shock, is important to note that Chinese companies are stepping up to contribute to the international fight against this outbreak in different ways.

In the first place, they are working hard to try to keep supply chains running, because in a crisis situation it is of special importance to ensure that there is enough supply of materials of every kind, especially for protection and for disinfection.

Chinese companies, in addition, are also providing the necessary infrastructure updates, as in the case of the construction of the 1000-bed Huoshenshan Hospital, which has been built in less than 10 days.

Moreover, they are helping people to go back to work and school, at least virtually, by increasing the number of video conferences at work, and by offering services that allow students to attend online classes like those offered by two giants of the Chinese tech world, Alibaba and Tencent.

Effects on the global economy

As a premise, it is important to note that the interconnectedness of the global business supply chains, in addition to all the incredible benefits that it carries, has unfortunately made the world in a certain way more vulnerable to societal and economic disruption from local infectious-disease outbreaks. 

On the economic side of things, given that it is the subject of this article, we must note that with the coronavirus outbreak spreading far beyond China, companies are braced for a hit on profits as demand slumps and production is disrupted, in fact, as we said before, even though Chinese companies are actively contributing to the fight against the effects of the disease, it is impossible to ignore the magnitude of this event and the effects that it has had, and is likely to have on the world economy this year.

Daniel Zhang, the boss of Alibaba, has described the coronavirus outbreak as a potential “black swan” event that could derail the global economy.

One of the factors likely to have the greatest and most evident impact on the global economy is factory shutdowns, in fact, an estimated 5 million companies worldwide have their suppliers, for some of all their products in China, all across different sectors.

For example, the automotive industry, with Wuhan which is a major center of automotive manufacturing, and major European carmakers like Renault, Volkswagen, and Land Rover, have still not reopened the factories that they run with Chinese partners. 

The effects of the virus on the economy are also affecting the oil market, given the relevance Chinese economy in the aggregate demand for oil globally. Last year China accounted for more than three-quarters of the growth in global demand for oil. If such an important player decreases consumption, the effects are immediate and can drive prices down a lot.

Two other sectors that are seeing a heavy impact of the Chinese slowing growth worldwide are those of Airlines and tourism in general, as well as that of Luxury goods

In fact, more than 85,000 flights touching China have been cancelled in three weeks since the outbreak, and on the other hand, luxury markets worldwide that tend to rely a lot on the purchases of Chinese buyers, who are the biggest buyers of designer clothing and handbags, are experiencing a big drop in revenue.

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