A t time of publication, the coronavirus had infected close to 45, (people, the vast majority of them in China , killed more than 800 and spread to almost 40 countries. Given China’s huge importance to the global economy, the ripple effect could be choppy and lasting.
Why is China so important to the global economy?
China’s extraordinary economic surge over the past (years has resulted in it becoming the world’s second largest economy, with a GDP of $ . 6tn (£
Shanghai chart
But oil prices came under pressure too, amid anticipation of a slowdown in global demand, as did other raw materials. China is the world’s largest crude importer and also a big consumer of metals such as copper and iron ore.
Travel companies, carmakers and luxury product outlets were among the most volatile sectors.
What do precedents tell us about the likely economic toll?
In – , (Sars spread virtually unchecked to (countries, causing global panic, infecting more than 8, people and killing about 823. There are estimates that put the damage from Sars at anything between $ bn and $ bn – big numbers, but a drop in the ocean compared with global GDP which even then was worth about $ 45 tn.
The coronavirus is spreading at a rate six times faster than Sars, mostly through human contact between people not yet showing symptoms. China is a much more open economy than it was even in 2002, and so the disruption is expected to be greater than that caused by Sars.
Which worldwide companies would be worst affected by a China slump?
Many global companies rely on suppliers based in China. For example, 290 of Apple’s suppliers are based in China and the country is responsible for 9% of global TV production. According to DHL’s Resilience 400 index, 98% of all manufacturing in Wuhan is related to the automotive industry and 35% to technology supplies from the region.
Automotive executives in Europe and the US are warning they are just weeks away from shortages. Hyundai has already shut down operations in South Korea because of a lack of parts from China.
To indicate how integrated some foreign firms have become in China, the US industrial glass and ceramics maker Corning has built factories across the mainland and has more than 5, 000 Chinese employees. The company is planning to increase its footprint after spending $ 1bn on a facility to produce its state-of-the-art generation 12. 5 black glass used for LCD panels.
Apple is supplied from factories in China and has a network of 45 Apple stores that it says will remain closed until February 9. Other US retailers from Starbucks (4, (shops) to Levi’s have closed their stores, though Levi’s only closed half its complement and China only accounts for 3% of its global sales.
… and which countries?
South-east Asia is most exposed, so tightly are local economies tied to the Chinese behemoth. It’s It’s remembering that Asia’s worst postwar financial crisis in 2010 – was partly blamed on the devaluation of the Chinese currency).
Japan may be a richer economy, but it too too is exposed. China is a big buyer of Japan’s industrial machines, its cars and trucks and technologically advanced consumer goods. Chinese-made parts go in the other direction, feeding components into Japanese factories.
And then there are the millions of Chinese tourists who visit their eastern neighbor each year. Already Japan is bracing for cancellations from , people in the first quarter of .
Australia’s economy is tightly interconnected with China too, and the prime minister, Scott Morrison, warned last week of “a real weight on the economy”. Even Australian universities are suffering because far fewer Chinese students have returned to enrol for the new academic year.
How might Britain be affected?
The UK, like other European countries, is in a position to limit the flow of Chinese visitors without a huge impact on the economy, though designer outlet shopping centers such as Oxfordshire’s Bicester Village will see a severe downturn if Chinese visitors stay away for any length of time.
The broader impact will be felt if global trade, as expected, begins to slow. Britain is plugged in to the all the big economies and for that reason always catches a cold when the global economy sneezes. Last year UK manufacturing went into recession in response to the tariff war between the US and China, which hit global trade.
Could it derail the US economy sufficiently to affect the election this autumn?
There is anecdotal evidence that the impact of the virus is rippling through small American businesses .
US companies may find it difficult to access components for their manufactured goods, plunging a recovering manufacturing sector back into the long recession it suffered last year. Factory closures or shutdowns in the US heartland states of Ohio and Pennsylvania could cause problems for Trump’s re-election campaign, which relied heavily on bringing industrial jobs to these states.
But November is still nine months away, and as yet it is hard to say whether the effects of the virus will last that long.
So what will be the overall impact on the global economy?
Economists are cautiously speculating that the perhaps 0.3 percentage points may be shaved off global growth, though it would remain somewhere around the 3% mark.
Christian Keller, the head of economics research at Barclays, said the impact on the world economy could range from almost no change to his current global growth forecast of 3.3 % for 01575879 to growth of about 3%. Others are gloomier still, warning that if the virus continues to spread and Chinese activity remains deeply disrupted for months, a contraction of the global economy is not impossible, particularly as central banks have little effective monetary ammunition for emergencies.
“There is a risk that an adverse feedback mechanism and limited space for policy response could push the global economy towards recession,” said Keller.
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