THOUGHTS FROM THE HEART The Society Corona Virus and its global implications

Corona Virus and its global implications


The rapid development of China’s coronavirus crisis coincided with the annual idling of much of the country’s economic activity due to the Lunar New Year break, which typically runs for a week or two. Global economists have been watching the post-holiday economic restart closely. Experts are looking for clues about the extent to which one of the world’s largest economies is coming back to life amid widespread coronavirus concerns. China is a major force to reckon with in the global economy. There are some things that are only made in China these days, and not just the usual electronics and toys but a lot of consumer products including active pharmaceutical ingredients that go into pharmaceutical supply chains worldwide. Not only this, the aviation and tourism industry has also been under the direct attack of this economic meltdown. If we look at travel, a number of airlines have shut down all flights, either because of the risk of contamination or the fall in demand. There was a  piece in Aviation Week last week which tallied the number of carriers that have cancelled all flights through March — not just through February. A lot of that is for lack of demand, both business travel and tourism travel. There was also a report out of France that saw about how the number of Chinese tourists shopping for luxury goods in Paris has fallen off a cliff. Chinese outbound tourism is a major factor in Europe and Singapore, in Macau, and the U.S. Starbucks, the bistro giant has closed more than half of its 4300 stores in China. Disney has closed both the Shanghai Disney Park and the Hong Kong Park. China is the second largest motion picture market in the world, and all the theaters have been closed because they don’t want people in large public gatherings. So there’s an impact on Hollywood studios who rely on that for a significant part of their income now.

It was reported in the Nikkei Asian Review that Foxconn could not reopen its Longhua complex. Foxconn is a supplier to Apple, so supplies are going to be tight for things like phones, not only iPhones, but Android phones. Over the last year, there has been some movement to diversify supply chains out of China, but there’s still a lot of notebook computers and TVs — the Chinese are now the dominant manufacturers of the flat panels used for those displays — made there with a significant number of factories in Wuhan. We’re going to see the direct impact of primary suppliers who are unable to fill orders in the short term and then we’ll also see secondary effects because somebody in the supply chain somewhere couldn’t make a delivery. There’s also been a lot of discussion about the U.S.- China trade deal and China’s commitment to import American products. Well, China can easily declare force majeure here. They have no ability to absorb that level of imports.

The global spread of the deadly coronavirus is posing a significant test for the world’s largest economy and President Trump, whose three-year stretch of robust growth has been hit hard by supply chain delays, a tourism slowdown and ruptures in other critical sectors of the American economy. The outbreak of the virus in China has already disrupted global trade, sending American companies and retailers that rely on Chinese imports scrambling to repair a temporary break in their supply chains. Its spread to South Korea, Italy and beyond has hindered global travel. Economic forecasters say that the effects will hurt growth in the United States this year even if they do not intensify — and that if the virus becomes a global pandemic, it could knock the world economy into recession. Stock markets have plunged and the market’s fall presents a challenge for Mr. Trump, whose presidential success has been deeply tied to the economy and a rising stock market that is now experiencing pronounced jitters.

As per RBI Governor Shaktikanta Das, the coronavirus outbreak will have a limited impact on India but the global GDP and trade will definitely get affected due to the large size of the Chinese economy. Only a couple of sectors in India are likely to see some disruptions, pharmaceuticals being one of them. As per Indian Pharmaceutical Alliance (IPA), Indian pharma industry has only 2-3 months’ stock. India imports Rs 17,000 crore worth of APIs from the novel coronavirus-hit nation. The other areas where India is dependent on China is mobile handsets, TV sets and certain other electronic products. Furthermore, India exports iron ore to China and this will create an impact in the Indian economy.

At the time of SARS outbreak, China was the sixth-largest economy and accounted for only

4.2 per cent of the world’s GDP. The Asian giant is now the world’s second-largest economy, therefore any slowdown in the Chinese economy would impact the global economy. China’s GDP has risen dramatically since SARS outbreak in 2003. In 2002, China contributed 23 per cent to the world GDP growth, in 2019 China contributed an estimated 38 per cent of world growth. Whether it is Beijing or Shanghai, there’s traffic all over the place and now nobody’s driving around. That’s probably a fairly temporary supply/demand imbalance. There’s less consumption of jet fuel and so on. Those things will come back to normal once we get past this epidemic. One of the problems is how to make up lost production. Once things start to go back to normal, we’re probably going to see a lot of overtime. But right now the uncertainty is probably driving people crazy.

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