Why The Coronavirus Outbreak in China Bad News For The Economy?

Global Impact

Globally, we are connected through the internet and markets as well. The global market of China is the second most significant block in the economic chain. Recently, an epidemic of coronavirus which has originated from the province of China, Hubei has made turbulence in the health and economic sector in China. Capital of Hubei, “Wuhan,” is considered to be the hub of transport in China, which is referred to as thoroughfare in China.

Source: FORBES

China is considered to be the 2nd biggest economy in the world. Fluctuations in the economy and growth rate of GDP in China’s economy tends to impact the economy of the overall world. Struggles of India for reversal of GDP growth rate sliding has already put the world in worry while at this moment, coronavirus outbreak is aggravating the complications and concerns of economy managers in the whole world. 

Economists point of view

According to the views of economists, China is easily vulnerable to technical recession on account of coronavirus outbreak. The economists have stated that it is a very bad time for China to face this problem.

Some economists and observers are comparing the epidemics of the past as SARS with current viral disease and their effects on the economy. China was also affected by Severe Acute Respiratory Syndrome (SARS), which lead to higher mortality than the recent coronavirus.

A chief economist stated in her interview with CNBC that for China, it is terrible timing for the breakout as it has slowed down the growth rate significantly since the second half of the previous year, as the current year was supposed to be solving the debt problems of China.

China's trade worldwide

The economists described the figures by saying that:

“Coronavirus outbreak has led to almost 20% loss of the whole economy and GDP (gross domestic product) of the country”. She also stated that the block down of the Hubei province of China was severe and unprecedented”. According to her, the overall impact of the virus on China’s economy is expected to be bigger than the loss faced during the SARS breakout. While calculating the growth numbers of China since the year 2005 and comparing them with the economy of the second half of the year 2019, only over 3% annualized rate has been seen.

Coronavirus and global market

According to estimates, the SARS outbreak affected the GDP growth rate of China by 1.1-2.6 % point. If a similar impact on the economy with coronavirus is observed, then it will be really devastating and dangerous for the economy of China at this point. In the years 2002 and 2003, when the SARS breakout was observed, the interconnection of China and the global economy of the world was quite less in comparison to the present age. In the present age, almost all countries are connected with China for their trades and markets.

The negative effect of coronavirus is already being observed across the global market in stock exchanges. Composite stock market indexes of Shanghai and Shenzhen in China are falling 3.52 % and 2.75% respectively before the Lunar New year break closing. The new year break in China has also been extended for days in an attempt to fight the adverse effects on Chinese markets.

What does Chinese authorities says

According to Chinese authorities, 425 people have been died because of this disease in China, while the overall population which has been affected by coronavirus has increased to 20,438.

Wuhan, China
Source: CNN

Another economist, a Chief Asia economist, said that the growth of china’s economy for the first quarter can fall to even less than 2 percent, year by year as a result of the block downs and shutdowns which are being enforced to control the spread of current coronavirus disease.

The economists are also predicting that fallouts on account of Wuhan disease can continue to persist for several months in the future. The spread of coronavirus is another unknown entity which global market is fearing from. The next few months are predicted to be of more pain and less gain as the global investors will prefer to invest in a human-friendly environment in comparison to some risky environment.

Coronavirus is from a massive family of viruses that can sometimes spread from different animals to humans and result in a range of diseases. The first coronavirus strains were discovered in Wuhan city, China, on December 31st. Economists say that we have witnessed the start of this epidemic, but we can’t know anything about how this epidemic will end. But in light of common sense and figures, this disease has a short-term and temporary effect of growth drag.

Asian Development Bank Assessment

According to ASB (Asian Development Bank), the SARS outbreak in China caused about 18 billion dollars loss in China. But the impact of coronavirus will be higher. Coronavirus has a significant human impact, which has been ranging to 35 million people resulting in a lockdown state, which could be even more threatening than previous ones.

Traveling also adds to the economy of the country. As lunar New Year is considered to be the time of traveling and vacationing in China, over 5 million population was aiming to travel abroad. But on account of this virus, the overall traveling economy has declined by about 40 percent in comparison to the just previous year 2019.

China has also done the massive transport shutdown, which affects the import and export sector of the country as well. Currently, China is considered to be the manufacturing hub for the world. Products from China are sold to every market in every country. Transport plays a crucial role in this trade. A prolonged shutdown of transportation will create a significant impact on the international and intra-national trade as well.

Source: Voice of America

The full and actual impact of coronavirus on the economy of China will be estimated once the virus is fully contained, and the regular business of the country is restored. But according to some early estimates, coronavirus can cost the economic growth of China by 0.5 % to 1 %. If we consider the loss of 1 %, then it will cause about 136 billion dollars loss to China’s economy, which will be deemed to be quite a considerable loss.

Fall of share prices in China has come after the turbulence in global markets by coronavirus outbreak in the last few days. In the last week, Wall Street’s S and P 500 index reached its worst since October 2019.

According to analysts, economists are trying to fly blind because of the data that’s coming out of China. The data is unreliable, patch, and scant. Recently, we are in a bit dark for knowing about the economic health of China, which is more worrisome as China’s economy is interconnected to the overall global economy.

Not internationally, but on national levels, the Chinese population is going through a lot of difficulties in term of their lifestyle, their needs, and financial status. People are preferring to stay at home. The markets in some cities are completely locked. People are bound to indoors for the sake of their prevention from the deadly epidemic. Small local markets are also facing a lot of economic and financial difficulties, which is making the lives of Chinese people hard inside their own country.

China has been facing a lot of pressure from neighboring countries in the world as they are more prone to this epidemic due to its geography. Some states have banned international traveling form and to China as well. China is suffering from the coronavirus outbreak, which is directly affecting its economy. As China is the 2nd biggest economy, fluctuations in its economy are directly related to the global economy.