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Impact of Coronavirus on Global Economy

9 March 2020   


Coronavirus, which began from Wuhan city of China has already taken a toll on the lives of more than 1000 people with more than 44,000 people infected. But, apart from the human cost, there is the economic toll, and the fallout will be felt far beyond China’s borders.“As a result of the outbreak, China’s economy is already slowing down. Most of the economic damage will be caused by deferred consumption as consumers are avoiding travel, shopping and eating out.

Impact on Stock Markets

Stock markets around the world have also plummeted, with investors spooked by the outbreak. There were sell-offs across a number of Asian markets last week. Businesses have cut back on production and trade as factories in China and elsewhere are closed temporarily, including those run by giants like Nissan, Tesla, and Foxconn, a major supplier to Apple.

Impact on Supply Chains and Demands

The virus is also set to have an impact on international supply chains and manufacturing given China's lynchpin role in the global economy. China, called “the factory of the WORLD”, is facing supply chain disruption which could ripple through the global supply chain and affect countries such as Malaysia, Thailand, and Vietnam, which are part of China’s larger supply chains. Logistics services will also be affected, which will deal a further blow to these supply chains.

Workers making iPhones at tech giant Foxconn's plant in central China will be quarantined for up to two weeks. China's industrial base has been buffeted by the outbreak of the virus, which began in the manufacturing hub of Wuhan in central China but has since spread to more than 20 countries.

Chinese demand is set to weaken as shoppers stay at home and services remain closed. Big brand retailers — such as Levi Strauss, Ikea, H&M, Nike and Starbucks — have closed many of their stores in China. The Walt Disney resorts in Shanghai and Hong Kong have also shut down.

Impact on Tourism and Exports

International tourism is expected to take a hit. Many countries like South Korea and Israel have told their citizens to defer travel to Singapore due to the novel coronavirus epidemic.

Besides tourist dollars, Asia may also lose export dollars as demand in Chinese drops, with a fall in domestic consumption. China is the largest export destination for a number of Asian economies. So, it’s not just outbound tourism from China that is affected, but also the ability to export things to China. China is the world’s largest exporter of electrical and electronic components, five times the value of Germany, and accounts for 30 percent of exports globally.

“The coronavirus outbreak is likely to keep the global manufacturing sector in recession in first half of 2020. Electronics and computers are most at risk,”

The impact is expected to be much greater than the outbreak of SARS, another coronavirus that originated in China in 2002. The Chinese economy is now more than four times larger and more interconnected with the rest of the world.

Impact on Indian Economy

Automobile Industry

India largely sources electronics, engineering goods, and chemicals from China. Non-availability of such products from China would mean related parties in India will have to scout for alternative markets, which can mean higher costs.

Travel and Tourism Industry

Another sector that might reel under the coronavirus attack is travel and tourism. In 2019, Chinese accounted for 3.12 percent of the total foreign tourist arrivals in India. Arrival of toursists from China have increased over the years in India. However, that might see a reversal this year, at least in the first.The travel advisory against China will also dampen the aviation industry. IndiGo, which operated three routes from India to China, have temporarily suspended service on two routes. Air India, too, has halted operations to China.

Opportunities Underlying

Even as the threat looms large, China's economic shutdown opens various doors for India. Global buyers are seeing India as China's replacement to source ceramics, homeware, fashion and lifestyle goods, textiles, engineering goods and furniture. Reportedly, Indian manufacturers and exporters have seen rising number of interests from the western market.

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