How the Coronavirus is Impacting the Global Economy and Financial Markets

What Impacts Coronavirus Is Causing on the Global Economy

China is fighting with yet another challenge. The country is known for doing the impossible. Talk about turning a ‘poor’ country into an economically stable one and making it the biggest manufacturer of the world, China has done it all and seen it all.

The country now faces another big challenge – threat to be exact. The new challenge is in the form of Coronavirus i.e. a virus that is affecting people’s respiratory systems and causing deaths in severe cases. Remember, China has already fought with SARS, which stands for severe acute respiratory syndrome. If you are not aware already, this condition, too, is caused by Coronavirus.

The name can be misleading at times. Coronavirus is not just one virus. In fact, it is a group of many different types of viruses that already infect animals. The only difference this time is that the strain causing the outbreak in many countries, especially China, is an entirely new one. Scientists around the world are still looking for cures to fight this virus, but as of yet, there is no particular vaccine to stop the outbreak. The only method that China has implemented to protect its people from the virus is prevention i.e. making them wear masks, avoiding contacts with infected people, etc.

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Now the Economic Side of It

Yes, the news of a new virus spreading in the world and causing deaths can be alarming and threatening at the same time. But the fear arising from such news does more than just scare people. It causes economic ripples. Not to forget at this point that China is one of the cornerstones in world economy today.

If China faces any financial and economic challenges, the world is going to stumble upon similar effects. Most importantly, it is the neighboring countries that will be affected the most not just from the news about the virus but the virus itself.

It is unfortunate that Wuhan Virus (the name given to the virus based on the city where its outbreak started) has emerged at a time when China was on the launch pad to go to new heights economically. In the past few years, the country has seen very small and slow progress in its growth and economy. However, 2020 was supposed to be the year when China would establish itself as one of the biggest economic powers.

Impact on Chinese Economy

First of all, it will be hurting to read for those who support China for its efforts that the country was on an elevating trajectory in 2020. Just before the current year started, China was supposed to experience a growth of nearly 6% in its economy. That’s a lot of growth for a country in just one year. However, that projected percentage of growth will only be a dream for the Chinese government now.

As of now, it is expected that the economy will take a setback that will push it by up to 1.5 points in the negative direction. That’s not good for China, a country that was recently at a vehement trade war against the US. The clash between the two countries was a show for the rest of the nations, expecting one to win over the other. The Coronavirus outbreak is sure to cause some morale loss to the Chinese government.

Another important point to notice here is that Wuhan is no ordinary city. A major part of the transportation of goods around and out of the country takes place here. At this moment, the government has the city locked down. No one can enter it and there is no one coming out of them unless they are confirmed to be purged of Coronavirus.

There are some important patterns to note here for global economy experts when they make their predictions about China’s future. First, they have to know that nearly 18 years ago, when SARS epidemic caused a wave of threat across China, the damage was not that big. Why? Because China was not as strong and big in terms of global economy as it is today. The many initiatives that country has taken in the past decade has rooted its economy within and outside the region where it is located.

SARS caused China to go back by nearly 2.5 points in terms of GDP growth. Now, you can already predict what the damage will be do the GDP of the country if Coronavirus stays active and spreading for a long time. Not to mention, one must not forget that the current outbreak is still new and not controlled. It is spreading as you read these words and thus the estimates made at this point are mere arrows in the dark.

While the New Year started a month ago for the rest of the world, it just started for China because the country celebrates its Lunar Year as the new year. Right when the new lunar year was beginning, the outbreak engulfed the country. This was a huge blow for Chinese stock exchanges.

There was a decrease of 2.75% in Shanghai composite stock market. But other stock markets in the country were not exception as a bigger fall of more than 3.5% was seen in Shenzhen stock market. The government of the country is currently taking actions to somehow push back the negativity that has caused huge falls in the stock markets.

When you read losses to a country in percentages, they might not seem very big. However, you should consider the magnitude of the Chinese market before neglecting these small percentages. So, how much damage will China incur if its economy faces a loss of only 1%? This will be a huge loss of more than $136 billion. That’s definitely going to hurt the ambitious China, which was going to conquer the economy of the world in 2020.

Effects across Various Industries

Traveling industry is going to face a huge blow in the wake of the Coronavirus outbreak. Any flights flying from other countries to China have been canceled.  At the same time, the flights from China back to the countries of residence of the tourists have been delayed. The governments of different countries are now taking measures to ensure that their people return from China without carrying the virus with them.

There are certain elements you have to look at to know the damage Wuhan Virus is going to cause to the economies around the world and across various industries.

First of all, two years back, it was Wuhan that contributed more than $224 billion in the GDP of the country. You can’t ignore the fact that the population of this city is not even one percent population of the country. In short, it is one of the most productive cities in the country. The damage to the traveling industry is also pretty clear if you only look at the condition of Wuhan.

Last year, Wuhan was the host to nearly 320 million travelers and tourists from around the world. You can already imagine the amount of revenue these people were bringing with them. In numbers, these tourists brought more than $350 billion into the country by just visiting Wuhan in 2019. Talk about the biggest companies of the world and more than half of them have their operations in this region.

The other major impact of the outbreak in China is on its neighboring economies. China is neighbored by another one of the world’s largest economies i.e. India. India has also felt the shockwaves from the Chinese markets.

India has already been struggling with its economy. The country has been going pretty fast in terms of GDP growth in the past few years. However, certain political circumstances have caused the growth to get derailed in recent times. Unfortunately, despite being a developing country with improving ties around the world, India was disappointing in controlling its GDP. It has been going down for some time and there have been no signs of any recovery.

If there were any chances of recovery, they might not last in the wake of the new global emergency that has arisen from Wuhan. Right after the news of the outbreak and slippage in the Chinese stock markets, the Indian stock markets started show downward trend as well. A decrease of 1% in the BSE Sensex index is not something to ignore. The more important part is that the impact has been felt in the stock exchanges of other countries as well such as the UK, the US, and Japan.

The manufacturing industry will also see a huge impact of the outbreak on it. China remains the top country in the list of the biggest manufacturers of the world. This industry will be impacted in a variety of ways. First of all, workers in China have been asked to work from home. Wuhan has been shut down and holidays have been extended. The government is taking measures to make public interaction as little as possible to stop the spreading of the virus.

Any manufacturing plants and industries that are inside Wuhan will be non-operational now. Furthermore, if there were any workers who had left China to spend their vacations will not be coming back because of the canceled flights. This might cause some impact on the production of various electronic items, which are majorly manufactured in China.

Imports in China will be at a huge loss too. Not many days have passed since China reached an agreement with the US to increase its imports from the US. According to this new deal, China has vowed to import goods worth $200 billion in one year.

This one is going to be the toughest challenge for the Chinese government. First of all, the economics experts around the world had already been showing their skepticism about this deal. In the eyes of most of these experts, China had to perform at its best to make such a huge number of purchases from the US in just one year. So, what seemed difficult to the experts in ideal circumstances will be nearly impossible when the country is going through such a tough phase of taking care of Coronavirus.

The Impact Is Defined by the Duration of the Outbreak

For someone trying to figure out how big the impact of Wuhan Virus will be on global economy, they first have to take into consideration the duration of the outbreak. According to recent estimates, Coronavirus has already caused more damage to Chinese economy than what SARS had caused nearly two decades ago. However, we are talking about the impact of the previous pandemic based on the results when it has been brought under control.

At this moment, China has not been able to control Coronavirus completely. The preparation of the vaccination is still underway. Preventive measures can only slow down the growth and expanding of the virus in other regions but it is in no way going to put an end to the outbreak.

The virus has reached to the other corners of the world as well, which is why a global emergency may be imminent too. There have been cases of Coronavirus in the US, the UK, and some other neighboring countries as well. It is clear that China is not the only country that has to fight this virus now.

Any dent in Chinese or global economy left by this pandemic can only be well-described when the problem has been overcome completely. That’s not the case right now.

According to financial experts from around the world, the impact of the condition in China has been major within the country but not so outside of it. While the effects are there, they can easily be neglected or called ordinary slips that happen in stock markets on a daily basis. However, it does not seem that talks of global economy and impacts on financial sectors will hold any value if the virus spreads all around the world and infects everyone. Let’s hope the scientists are able to find a solution soon.