Coronavirus was the last thing a sluggish global economy needed. Just when things began looking up and international trade was moving, the pandemic has come as a huge setback.
With Wuhan and Hubei provinces at the epicentre of the epidemic, India too is in the concentric circles of impact, and we have reason to be worried. The official count of deaths from China touched 636 on Friday, with the number of infected cased crossing 31,000.
Official Chinese figures on death and tragedy are routinely under-reported and the real figures are anyone’s guess. A ‘Taiwan News’ report latched on to a purported ‘leak’ by the mainland Chinese Tencent website, where the ‘real’ numbers flashed on 26 January was 154,023 infection cases and a whopping 24,589 deaths! The Tencent website quickly corrected the ‘mistake’, but it has left a lot of people guessing.
Worse than
SARS Analysts are saying Coronavirus, still galloping across geographies, could be worse than SARS – which stands for severe acute respiratory syndrome, and first emerging in China’s Guangdong province in 2003. The virus infected about 8,000 people, accounted for 800 deaths and knocked off about 1 per cent from China’s GDP in 2003.
IHS Markit predicts “Coronavirus will have a larger negative effect on the global economy than the SARS outbreak in 2003,” as China accounted for just 4.2 per cent of the global economy in 2003 as the 6th largest in the world then. Today, China is the second largest economy after the US and contributes nearly 17 per cent of the world’s GDP. “Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe,” the report said.
As with SARS and other epidemics, there is the heavy cost of caring for the sick and to contain and medically counter the virus. It involves huge resources, but it is a fraction of the real costs of economic contraction that comes from the behaviour of real and imagined fears of normal, healthy people and governments. Russia has already closed its 2,600 kilometer border with China; and the cancellation rate of visitors flying into China has touched 500 per cent.
China, a slowing economy, is now facing the impact of the Coronavirus lockdown. Wuhan and the central Hubei provinces have severe restrictions of people moving out. Eleven provinces accounting for 70 per cent of Chinese GDP and 70 per cent of its automobile production, will remain closed for more than an extra week after the annual Lunar New Year holiday. This is to keep workers at home and restrict the spread of virus.
The long range impact will all depend on how long the lockdown lasts. Bloomberg analysis says China’s firstquarter GDP growth may slip to 4.5 per cent Y-o- Y, from 6 per cent in the final quarter of calendar 2019. For the global economy, the major impact unravelling is the disruption of global supply chains. China is the largest supplier of intermediate goods which are sold from one industry to another with various levels of value-adds.
Bloomberg estimates the global reliance on these goods used by a range of industries from electronics to automobiles doubled to 20 per cent since 2005. With the key exporting, coastal provinces in shutdown, the global disruption to the global production lines is serious. For instance, Robert Bosch GmbH, the world’s largest car-parts maker, had to shut two factories employing 800 people in Wuhan.
India Impact
India, which has close trade and business links with China, so far has detected three positive cases of Coronavirus, all from Kerala. Another 5,200 people have been quarantined.
While the medical situation is fortunately not serious, the economic impact is. China is our biggest trading partner, accounting for the largest share of 14 per cent of India’s imports in FY2019. It is also the third largest market accounting for five per cent of India’s exports. Disruption is already hitting imports from China for the consumer electronics, automobiles and pharmaceutical industries, while our exports of seafood and spices, a $10 billion trade, is threatened as China’s imports fall.
At home, paracetamol prices have increased from Rs 260 to Rs 360 per kg, a business daily reported. The global impact of Coronavirus and the trickle down effect domestically is still in the realm of speculation. Initially, J P Morgan estimated it would reduce annual global gross domestic product (GDP) growth by 0.3 per cent for the first quarter of calendar 2020, but the estimates since have been pushed up with UBS economists predicting 2.5 per cent of global growth will be shaved off.
We still don’t know the exact contours of the virus’ spread in China, and how effective containment measures are. It also calls for introspection on the unknown challenges which science and medicine have not solved for the human race. The impact, as we are seeing, is so big it can bring perfectly healthy and galloping economies to their knees.