By: Max Ash  | 

The Global Economy’s Coronavirus Infection

The world has been blindsided by the sudden outbreak of coronavirus in recent weeks and it does not look to be slowing down anytime soon. Obviously, the tragic effect the disease has had on the human population is not one to be ignored, with over 25,000 being infected and hundreds succumbing to the deadly infection. The virus emerged in Wuhan, China and has quickly swept throughout the province, with its tentacles reaching all the way out to the United States. Government officials in China have taken precautionary measures to combat the spread: a quarantine on Wuhan has been imposed, as well as a delayed opening of the stock market and travel restrictions. The markets crashed upon opening, though they stabilized the next day.

From a different perspective, investors globally are wary of the devastating effect that it can have on the global economy. In 2002, when the SARS outbreak struck China, the country was nothing like the superpower it is today. China’s share in the global economy at the time was around 5% — now it is hovering near 16%, thereby rendering comparisons to the potential impact of the coronavirus relatively useless. Not only that, but the emergence of the virus during Chinese New Year celebrations has made it difficult to predict its impact, as all industries, with the exception of tourism, are normally shuttered during the period. In the commodities department, Brent crude oil prices have plunged from $70 to $55. One thing is definite, though: global markets have plummeted and investors are waiting for the barrage to end.

As its influence has grown, China’s importance in the global supply chain has increased dramatically. Companies from Airbus to Nike manufacture components to be shipped all over the world. Airbus has halted production at their plant in Tianjin, which churns out six A320 aircrafts monthly. Foxconn, a major Apple supplier, shuttered most of its Chinese locations.

Apparently, the only immunity GM holds is in its tax obligations — their factories in China have all but completely shut down. Honda has three factories in Wuhan, the epicenter of the virus. The auto industry as a whole has suffered immensely throughout this ordeal, with the estimated loss in car production expected to surpass 400,000 vehicles.

The virus has hit the retail side of companies just as hard. Retailers that rely on China for a chunk of their revenue have been hit on all sides. China’s ever-present upper-middle and upper classes have been scared to go outside and visit their favorite brands. Not that it even matters, though: virtually all global retailers have closed or imposed reduced hours at their locations in China. Nike, Adidas and Starbucks are among the brands taking these precautions. The importance of the Chinese consumer to global businesses is self-explanatory and those businesses’ revenue predictions have been adjusted to account for recent developments. Thanks to its thriving middle class, Chinese spending accounts for roughly 33% of the luxury goods market. This puts fashion houses such as Burberry, which relies on 16% of its revenue from the Chinese consumer, in a bind. 

With her population estimated at over 1.4 billion people, China, expectedly, sends out over 150 million tourists to locations throughout the world annually. According to the China Tourism Agency, over $130 billion was spent by Chinese tourists overseas in the past year. In an expected move, virtually all countries have imposed some variation of travel restrictions on citizens traveling to and from China. Most major airlines have suspended their flights involving China for the foreseeable future. Japan, whose tourism industry is dominated by Chinese tourists, has been knocked off balance.

There is a small yet intriguing positive element to the whole ordeal, though. With the majority of Chinese office workers being told to work from home, numerous companies are experimenting with video conferencing technologies such as Zoom, one of a few “winners” during this period. Zoom’s stock price has jumped nearly 20% since the virus’s emergence, and investors are optimistic at the company’s prospects. How could this be a positive? Well, the “work from home” concept has slowly become more accepted across certain industries and the situation in China will undoubtedly serve as a mass-scale test to gauge the concept’s strengths and weaknesses. 

Chinese doctors have predicted the virus will peak soon, and only then will its true impact allow for markets to accurately adjust.

Photo Caption: The global economy has been devastated by coronavirus, and its true impact is still unknown.
Photo Credit: Pixabay