Coronavirus And Its Effect On Global Economy

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Econolodgestocktonca.com – Wuhan, the capital of Hubei province, People’s Republic of China, was suddenly known throughout the world. In the city of 9 million people, the first coronavirus (Covid-19) attack began. The virus that was thought to have originated from the animal then became a global pandemic that claimed thousands of lives. Not only in mainland China, the coronavirus has also spread to 108 countries until March 2020.

Coronavirus is not the only epidemic that shocked the world. In 2003, the virus was once epidemic with the name Severe Acute Respiratory Syndrome (SARS-CoV) which also began in China. The initial transmission was thought to be from mongoose animals and infected the first 1,000 people in 130 days. The ratio of deaths from this virus is 5 out of 50 people infected.

Then, coronavirus with another type also appeared in the Middle East in 2012. The virus is known as Middle East Respiratory Syndrome (MERS-CoV) which is thought to spread through camels. Meanwhile, the Covid-19 outbreak has caused global concern. This is due to the rapid spread of the virus, which only takes 48 days to infect the first 1,000 people. No doubt numerous countries made a number of efforts to isolate the spread of the virus.

Numerous countries are taking steps to prevent the entry of viruses that cause pneumonia and fever. Including Indonesia, which stopped direct flights and to China. Not only China, the government has also restricted the entry of people from Iran, Italy, and South Korea.

Coronavirus Affects The Chinese Economy

Wuhan is one of the economic centers in China. Based on the data, the city’s GDP reached 1,48 trillion yuan. With this amount of GDP, Wuhan is among the top 10 cities with the largest economy in China.

As quoted from the SCMP, stopping economic activity and closing access will not only cripple Wuhan. Coronavirus outbreak is estimated to have an impact on the Chinese economy. Furthermore, Wuhan is the link between the central China region and other regions.

The city has become the center of the automotive and steel industry in China. In fact, in recent years, it has invested into a high-tech center for the optical industry. Microsoft and the German software company SAP are known to build industries in this city. As well as automotive companies such as Dongfeng Motor Corp, Honda, Nissan, General Motor, and the French car manufacturer Groupe PSA.

Last year, China’s GDP grew by 6.1%, the lowest in 29 years. With the outbreak of the coronavirus, the Chinese economy is certainly falling to its lowest level in the last three decades. Especially if the virus named Covid-19 to spread outside the Wuhan region, which it has, as a matter of fact.

With this situation, the Economist Intelligence Unit (EIU) cut China’s economic growth to 5.4% by 2020. This figure is lower than the previous prediction of 5.9%. But the impact on GDP will be even greater if the outbreak is not handled correctly. The same thing was done by a number of institutions that lowered the projected growth of the Chinese economy this year.

The Chinese government also does not argue if the corona outbreak can reduce economic growth between 0.2% – 1%. This was said by Zeng Gang, Deputy Chair of the Institute for Finance and National Development, as quoted by Reuters. This estimate refers to the impact of the SARS outbreak that occurred in 2003. “The impact of this epidemic on the economy in the first quarter, is likely to be comparable (with SARS),” said Zeng Gang.

The Declining of Global Economy

As the country with the second largest economy, the decline of the Chinese economy will have an impact on the global economy in 2020. This can be seen from the projections made by a number of institutions. EIU lowered its global economic growth target from 2.3% to 2.2%. While the World Bank estimates economic growth of 2,4%, down from the previous estimate of 2.5%.

Moody’s Analytics research institute in the report “Coronavirus: The Global Economic Threat” (2020) projects, China’s economic growth in the first quarter of 2020 eroded up to 2 %. Meanwhile, every 1% decrease in the country’s GDP will reduce the world economy by 0.4%.

According to the report, the Asian region would be the most disadvantaged. The short-term impact has also been seen in the tourism sector. A number of countries that have temporarily suspended flights and shipping to and from China have recorded a decline in tourist arrivals, such as Thailand, Japan and Vietnam. In Macau, quoting Bloomberg, the number even dropped to 83% during the Chinese New Year holiday.

Data from the China Outbound Tourism Research Institute said 173 million Chinese tourists traveled abroad in the period from October 2018 to September 2019. The World Tourism Organization also said that they spent the most money on their voyages, adding up to US $ 277 billion in 2018.

While from the trade sector, China is the largest exporting country. In 2018, the value of Chinese exports will reach US $2.5 trillion. While in terms of imports, the country became the second largest buyer after the United States. The reduced economic activity has affected supplier countries such as South Korea, Japan, Taiwan, and other Asian countries.

In addition, since early 2000, China has been intensively investing its capital in other countries. The funds are invested in a number of infrastructure and manufacturing projects, especially in the Asian region such as Pakistan, Indonesia and Malaysia. During 2005-2019, the total investment made by China in Asia reached US $ 527.2 billion.

With China’s economic cake getting bigger and its global connections, making every turmoil in the country have an impact on other countries. This situation happened in 2003, when China faced an outbreak of SARS. At that time, the outbreak lasted around nine months. In the calculation of the Brookings Institution, China’s GDP fell by 1.1% over the year.

However, at that time the Chinese economy had not been very influential globally. Its GDP portion is only 4% of the world total. Then tourists traveling abroad were only 20 million. Now with GDP reaching US $ 13.6 trillion or 16 percent of total world GDP in 2018, the impact of coronavirus will certainly exceed SARS. Not only the number of victims killed, but also the impact on the global economy will be more significant.

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