An economic epidemic

by February 7, 2020 0 comments

The Coronavirus has not only dented the Chinese economy but has had a cascading impact everywhere

The world is a global village and our economies are inextricably and inexorably linked to each other. So make no mistake,  the economic costs of a pandemic, like the one the world is facing right now due to the Coronavirus outbreak, are huge, not just for China but for the world economy at large. Economists have estimated the annual losses from outbreaks such as that of the Coronavirus to be around $500 billion or 0.6 per cent of the global income, both in terms of lost income and the loss of human capital due to large-scale fatalities. A 2016 study by the Commission on a Global Health Risk Framework for the Future estimated that disease outbreaks would cost the global economy over $6 trillion in the 21st century, which comes to over $60 billion per year. The scary part is that we are just getting started because the impact of the contagion is deepening. To begin with, global stock markets have taken a hit and are lower than they were two weeks ago with shares of industrial commodities plunging because China is a major buyer. Shares of airlines and hotels tanked over fears of travel disruptions as did those of luxury and consumer goods. Several overseas airlines have stopped flights, hotel chains have been offering refunds while global retailers like Ikea and Starbucks have shut shop.

Disruptions in international supply chains are set to deepen as China is an important supplier for the global motor industry, the electronics sector, mobile phones and computer firms. In fact, Hyundai has already suspended production because of problems with the supply of parts from China. Copper, an important material for the construction industry, is also cheaper by about 13 per cent, which will hit emerging and developing economies like India as they are its biggest supplier. Crude oil is also at its lowest level in more than a year and dropped by 15 per cent in the last two weeks due to the fall in demand from China. Not just this, the organisers of the Tokyo Olympics are a worried lot with just a few months to go and so are those of the Milan Fashion Week as Chinese fashion houses Angela Chen, Ricostru and Hui cancelled their runway turns. This is bad news as the Chinese are the world’s biggest buyers of high-end luxury goods. On the bright side, shares of pharmaceutical firms and medical devices rose as did the prices of gold as a safe asset. The Chinese virus has already slowed down the global growth rate by 0.2 per cent. India’s manufacturing sector, which is dependent on Chinese imports, needs to now really “make in India.”

(Courtesy: The Pioneer)

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