The outbreak of the new Coronavirus, COVID-19 has already cost the world greatly in more ways than one.
The virus has taken lives and enveloped people in fear. Another notable impact of the virus outbreak has been on economies worldwide, particularly in China where the virus has claimed the most lives.
China and the Global Supply Chain
China, as the second-largest economy, holds great sway in international trade and the flow of goods. As of 2019, the country was responsible for almost 14% of global exports and 9.1% of global imports. Before the outbreak, the province of Hubei with Wuhan as its capital played an important role in China’s economy. In addition to its role as China’s Manufacturing and optics hub, it has also been a centrepiece to domestic and international economic projects such as the Yangtze Economic Belt, Made in China 2025 and the well-known One Belt One Road initiative. As such, many household names in the automotive and tech industry such as General Motors, Honda Motors, Hyundai Motors, and Groupe PSA, have joint ventures, factories, and Research and Development (R&D) centres situated in the province.
China was and arguably still is ‘the world’s factory’, with many investing heavily in its industrialization. It is also the reason why it’s slump due to COVID-19 has disrupted the global supply chain immensely.
The development of the outbreak came at a time when workers were about to return from their spring festival holiday. In an attempt to combat the spread of the disease, China imposed lockdown measures upon Hubei and the city of Wuhan. In addition, some companies extended the holiday or urged their workers to work from home.
Shutting down China’s industrial centres and downscaling productivity do not come without a cost. For instance, Apple had reported that COVID-19 will hurt the iPhone supply chain. This is mainly due to production shutdown, as factories owned by Foxconn (Apple’s largest supplier) in the ‘iPhone city’ of Zhengzhou reduced its production to help contain the virus. Big companies are not the only ones affected by the outbreak. Small businesses in the U.S had reportedly struggled to get supplies for conducting their daily commercial activities.
As if affecting the global supply chain wasn’t enough, the outbreak has hit another crucial sector in many economies. That sector is tourism.
Before the outbreak, China was the largest contributor to outbound tourism to Japan, South Korea, and other East Asian countries. The initiative by China to ban tours and limit travel as much as possible to contain the outbreak has led to a large slump in tourism revenue for East Asian economies. For instance, Japan is predicted to lose $1.29 billion of tourism revenue by the end of March. Other countries such as Indonesia have seen the loss of jobs, particularly in travel agencies that specialize in accommodating Chinese tourists.
Due to the outbreak as well, many countries have greatly restricted travel from and to particular countries with concerning developments surrounding the virus. For example, Thailand had urged its citizens to postpone visits to South Korea and Japan due to the outbreak. South Korean and Japanese tourists have also been barred by authorities from countries such as Israel due to fear of contagion. These travel restrictions hamper countries who are currently vying for more visits to their country, such as Japan. They have prepared quite extensively for the Olympics that are due to be held this year, only to see possibilities of it being postponed or cancelled due to the outbreak. Currently, authorities seem reluctant in postponing or cancelling the Tokyo 2020 Olympics. This could be rationalized by insurmountable economic losses that it will sustain if it postpones or cancels the international event.
China’s lockdown and containment measures have impacted the world economy greatly, particularly in global supply chains and tourism flows. It is still uncertain whether there will be an economic comeback after the outbreak, or whether we are seeing a possible downsizing of China’s economic influence with sprinkles of economic recession for many countries. The virus outbreak has of course not just impacted the Chinese economy and those countries directly depending in part on it, but also economies worldwide as the virus continues to spread. Britain’s FTSE100 has lost more than £150bn of value since the start of the week as anxiety over the virus outbreak potentially becoming a pandemic hits stocks worldwide.
The economic cost of the virus outbreak has already been huge, and it looks likely that it will continue to grow.