COVID-19 epidemic threatens global economy

Workers manufacture products at a factory of Skyworth in Guangzhou, China, February 10, 2020 (Photo: Xinhua/VNA)

Although statistics are still preliminary, disruptions are being reported in production and supply chains all over the world.

The COVID-19 epidemic, which broke out in early 2020 during the Lunar New Year holiday in China and several other Asian countries, has taken a toll on China’s health care, tourism, transport, trade, production value chain, and financial services.

China is racing against time to prevent the epidemic from spreading further and further destabilizing its domestic economy.

Immediate impacts

One night after China announced a new diagnostic method for confirming COVID-19, the number of deaths and infections soared and the stock markets plummeted from Asia to Wall Street.

Casinos closed in Macau. Airlines cancelled 25,000 flights to or from China and within China. 27,000 employees of Hong Kong’s Cathay Pacific were asked to take unpaid leave.

Hyundai Motor Company closed all its factories in the Republic of Korea for one week because of a lack of spare parts imported from China. Wuhan city, capital of Hubei province and the epicenter of the disease, halted all manufacturing.

From the European multinational aerospace corporation Airbus to American vehicle manufacturer Tesla and tech giant Apple, production has slowed down.

During the COVID-19 epidemic, many Chinese provinces and cities have extended the Lunar New Year holiday. These areas account for 80% of China’s GDP and produce 90% of China’s exports.

China’s shutdown of major transport arteries has wreaked havoc on the food and hospitality industries. In France, hotels suffered substantial losses as 80% of booked rooms were canceled in January and all booked rooms were cancelled in February.

Multinational companies like Google and IKEA announced temporary closure of their branches in China. The Organization of Petroleum Exporting Countries (OPEC) lowered its forecast for oil demand growth in 2020.

Russia, the Democratic People's Republic of Korea, and Mongolia closed their borders with China, while Western countries repatriated their citizens from China. Many countries warned their citizens not to travel to China. The global supply chain is disrupted because China, a link of the chain, is now ravaged by COVID-19.

Countries improve resistance to risks

Experts say it’s too early to give a full assessment of COVID-19’s impact on the world economy. But recent studies by Moody’s, BNP Paribas Cadif, and International SOS suggest that the epidemic in China, the world’s second largest economy after the US, which contributes 33% of the world’s total economic growth, will lower global GDP by 0.3-0.7% this year.

Oxford Economics forecasts that the US will experience a loss of 1.6 million visitors from mainland China this year.

Europe’s growth outlook might also be challenged because Europe has emerged as a more popular tourist destination for Chinese visitors since 2018 in the context of worsening US-China ties.

But IMF Managing Director Kristalina Georgieva on February 13 said COVID-19’s hit to global growth should be “mild.” The IMF expects a “V-shaped impact,” with a sharp decline in activity in China followed by a sharp recovery, meaning there likely will be only a mild impact on the rest of the world.