How Coronavirus Spells Trouble for the Global Economy

Chinese Residents of a Quarantined Zone in Wuhan

Several months ago, Wuhan was an ordinary Chinese city enjoying the rapid industrialization and increasing wealth that the rest of China has experienced over the past 3 decades. Business was booming, the bullet trains were always on time, and its iconic neon lights shone with a fervent aura. By January 28, however, people were forbidden from leaving the city as house-to-house searches were initiated and thousands were sent to cramped, ill-prepared disease centers: quarantine had begun. While its exact origins remain unknown, the 2019 novel coronavirus (2019-nCoV) responsible for the epidemic and subsequent panic of this magnitude is suspected to have simply originated via consumption of infected bats from a local market. The cause for such global hysteria over the disease is the ease at which it spreads from person to person through respiratory droplets and has already infected over 70,000 people in 29 countries worldwide, quite an astounding feat considering its humble beginnings in Wuhan. The scary thing is, this number is only growing.

What many people fail to acknowledge amidst humanitarian crises like these is how their effects can go beyond public health and reverberate into the realm of economics too. In 2003, a coronavirus known as SARS emerged in China, infecting around 8,000 people. This cost the global economy an estimated $40 billion in total. The 2019 novel coronavirus has spread on a much larger scale, already affecting almost 9 times as many people. While this alone might be enough to shock investors, China only commanded 4.2% of the world’s GDP in 2003, compared to 16.3% today. What once was a scarcely-developed nation experimenting with capitalism has now emerged as a major manufacturer and a world economic power. 

The National Bank of China found that a severe pandemic could lead to economic losses of up to 3 trillion dollars, nearly 5% of the global GDP. Although the 2019 novel coronavirus has not been declared a pandemic by its home country as of yet, it has a real possibility of becoming one. This is dangerous regardless of the pandemic’s origin, but the fact that China is so integral to the global economy makes things only that much worse.

The rise of this coronavirus essentially closes off China to the rest of the world by forcing factories to close and extending worker holidays. Thus, it has severe impacts on the chain of supply and demand. This is largely due to Chinese responses to the disease, however, not the disease itself. To prevent themselves from contracting the disease, many people simply stop traveling, working or shopping. For China, the manufacturing hub of the world, this will undoubtedly fracture its economy and the world’s as a whole. Apropos to that, first, China has the largest automotive industry in the world. With factories closed, companies like Toyota and General Motors are left with no choice but to cut down on production. Supply has also been disrupted in the technology industry, as China is one of the leading producers of smartphone chips, and many of these factories have been forced to close as well. 

Furthermore, Chinese consumers are a crucial part of the luxury goods and tourism industries, earning a name for being heavy spenders. So, with them spending more conservatively, or not at all, revenue in these industries falls significantly. China also drives demand in sectors like the oil industry, and in 2019, they accounted for half of the growth in the world’s oil demand. Wuhan especially used to be one of the key oil and gas hubs in all of China and is currently on lockdown. Consequently, domestic trade as a whole could diminish, as it did in 2003.

These changes have already been reflected in stock markets. The benchmark Shanghai composite lost nearly $400 billion in value and was down nearly 8% at the beginning of the outbreak. The Dow Jones Industrial Average was down nearly 4%, erasing all gains from the previous year. China has attempted to remedy these economic issues by lowering interest rates and injecting large amounts of cash into the markets. However, given diplomatic tensions with other nations—they are currently engaged in a trade war with the United States, the largest economy in the world—and a large debt, China will likely face a real challenge in recovering. Some argue that China is stronger than ever with strong policies, improved production, and more resources. But, even if the long-term severity is up for debate, at the very least, China is drastically being affected as of now, with an estimated $60 billion in losses this quarter alone.

It should be noted that while monetary issues pale in comparison to actual lives lost, if these problems are completely ignored, this dilemma can only add fuel to the fire and make an already horrible situation even worse. Since the global economy is interconnected, a single event in one country is enough to send ripples throughout. Thus, what on the surface is just a public health problem can also metastasize into the scourge of countless investors and financiers.