As the Wuhan coronavirus rapidly spreads – from dozens of official cases of the illness in China a few weeks ago to nearly 15,000 cases and 305 deaths worldwide on Sunday – the pathogen’s potentially deadly grip is not only exacting a human toll, but an economic one too.
The world’s second-largest economy is seeing large parts of its population on virtual lockdown and its gross domestic product growth is expected to slow. Meanwhile, the cost of the disease on travel and tourism are spreading throughout Asia. U.S. economic growth is now forecast to drop 0.4 percentage points in the first quarter to fall to around 1.6%, Goldman Sachs reportedly said on Friday.
The disease is hitting major U.S. companies such as Apple which shut down its retail stores in China for at least a week – and Starbucks , which has also closed thousands of shops. U.S. airlines United Airlines , Delta Air Lines and American Airlines have also been hit by the virus, as many have canceled flights to China or will be squeezed by travel restrictions and fear. The virus is also reportedly hurting Chinese production for Japan’s Toyota and Honda .
“Based on the continuing rise in the number of coronavirus cases and deaths, it’s increasingly apparent the disease is becoming an economic as well as a public health concern,” wrote Ben May, Oxford Economics’ director of global macro research in a report titled “Coronavirus to Deepen the Near-Term Downturn” published Friday.
In the latest developments, the virus was diagnosed in a college student in Boston who recently returned from Wuhan and a traveler in New York City is now undergoing testing for the pathogen, after other illnesses were reportedly ruled out. If the latter person is diagnosed with the disease, it would mark the ninth known case in the U.S. Also, the first person to die from the virus outside of China was recorded over the weekend in the Philippines.
As the virus has appeared in more than 24 countries, several nations have declared public health emergencies, including the U.S. where additional travel restrictions and mandatory quarantines will become effective by late Sunday.
China, which has the vast majority of diagnoses of the disease, has implemented quarantines and travel bans as it struggles to slow the spread of infections – which reportedly may also be increased by contact with fecal matter of patients.
“With eight key regions and two cities in China subject to closure of non-essential businesses until at least Feb. 9, it appears inevitable that overall Chinese activity will be disrupted in the short term. Considering the affected areas account for just over 50% of total Chinese output, we think this could lead China’s annual GDP growth to slow to just 4% in Q1 – our previous forecast was for a 6% rise,” according to Oxford’s May. “Thereafter, growth should rebound, as the affected regions return to business as normal and the benefits of the monetary and fiscal policy response filter through. Over 2020 as a whole, we expect growth to average 5.6%, compared to our previous forecast of 6%.”
But because the virus appears to spread before symptoms show up – for possibly two weeks after infection – and little is still known about the pathogen’s infectiousness, it’s hard to tell when its spread will really be controlled.
To respond to the economic toll of the disease nationally, Beijing is readying to open the gates on funding — with its central bank flooding $173 billion in new liquidity to money markets on Sunday, according to the Financial Times.
Before that news, Oxford’s global economic model showed that effects of the coronavirus could result in global gross domestic product growth
sinking below 2% in the first quarter, a half point lower than its previous forecast.
“Over 2020 as a whole, growth would be 0.2ppts lower than previously assumed at 2.3%, the weakest annual rate since the global financial crisis. By comparison, our estimates suggest that the total global cost of the SARS outbreak in 2003 was around $60bn, or about 0.15% of global GDP,” wrote May.
But this forecast, May acknowledged, assumes a “worst-case scenario” is avoided. “An increase in the geographical spread and duration of the restrictions that have been imposed already could lead to even weaker activity in the affected regions. The spillovers to the rest of the world from supply chain disruption and fewer Chinese tourism visits, among others, would mount.”
May also sees the global economy as taking a bigger hit now than from the SARS virus of 17 years ago, as China’s share of the “global goods trade” has ballooned to 12.8% in 2019 from 5.3% in 2003.
“Due to China’s role in global supply chains, the spillovers of reduced shipments from China could be significant for global trade if component shortages trigger production to cease or slow elsewhere,” wrote May. “Indeed, anecdotal evidence suggests this is already a problem for some firms.”
Apple, for example, has urged suppliers to produce some 80 million iPhones over the first half of this year, but “production could be complicated by the outbreak of the coronavirus in China’s Hubei Province, given that their main manufacturing centers are in nearby Henan and Guangdong provinces,” reported the Nikkei Asian Review last week.
“The [coronavirus] situation in China could affect the planned production schedule,” Nikkei quoted a supply chain executive as saying. The publication said Apple declined comment.