The Coronavirus and Its Impact on the Global Economy

In December 2019, the Chinese Authorities detected a new coronavirus in the city of Wuhan. It was a previously unknown virus to the scientist which is now officially called COVID-19. Since its discovery, it has globally infected over 130,000 people with a confirmed death toll of 4900 people. The majority of the cases are in China which accounts for nearly 2/3 of the total cases in the world, as of 13 March 2020, China has reported a total number of 80,814 cases with 3177 confirmed deaths.

The outbreak of COVID-19 is currently affecting 127 countries around the globe. Italy is the second most-affected country after China followed by Iran, South Korea, and Spain. The outbreak has prompted the World Health Organization (WHO) to declare Coronavirus as global pandemic disease.

Impact on Chinese Economy

Chinese authorities have quickly responded to the outbreak and have placed almost 60 million people under quarantine. The factories have paused their operations and life has come to a standstill in many parts of the country. Being the world’s largest exporter of goods, the shutdown has brought China’s economy in a contraction mode for the first time since 1976. The official data shows that the growth for the first quarter can come down to 4% compare to 6% in the last quarter of 2019.

Since the outbreak, the International Monitory Fund (IMF) has also cut down China’s growth to 5.6 percent which is 0.4 percent below from the previous estimate. The Caixin purchasing managers (PMI) index has also fallen to 26.5 in February compared to 51.8 in January suggesting a big contraction in the manufacturing sector.

The Chinese automobile industry has also been severely hit, the care sales are down almost 90 percent in February. The travel industry in China is also facing a huge decline in flight booking which is declined by 55.9 percent compared to the same period in 2019 mainly due to the reason for tourists canceling holidays and their business trips. At the same time, smartphone sales have also taken a big hit as the shipments being delayed due to the outbreak.

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The effects of the Coronavirus on the global economy

The coronavirus epidemic is causing a sudden stop of economic activities which is leading a serious threat to global growth this year. Major sporting events around the world are being canceled, official meetings and the foreign visit of the head of states are being re-scheduled. Factories around the world are shutting down which in return is disrupting the demand and supply chains. The temporary closures of schools, restaurants, airports, and restaurants are causing multi-million dollar losses.

The Organization for Economic Cooperation and Development (OECD) has suggested that the global economy may grow at the slowest pace since 2009. It has lowered the global growth rate to 2.6 percent down from 2.9 percent of their previous forecast. The OECD also said that if the outbreak is not contained the growth rate for 2020 may fall to as low as 1.5 percent.

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Impact on America, Europe and Rest of The world

As of 13 March 2020, there are 2018 confirmed Coronavirus cases reported in the United States of America with a death toll of 41 people. President Donald Trump is expected to declare a national emergency later on Friday to prevent the virus from spreading further. Earlier this week, the American government had also imposed a 30 days travel ban from Europe to the US which is further putting pressure on a struggling air industry. The American Federal Reserve is also considering to cut the interest rate to overcome the economic effects of the outbreak.

The OECD has downgraded the US growth forecast from 2.1 percent to 1.9 percent. Some analysts now believe that in case if the outbreak continues to the summer, the U.S economy may go into a recession which will prompt business to lay off hundreds of their employees.

Elsewhere in Europe Italy is the 2nd most affected country in the world which has so far reported 17,660 cases and 1266 deaths. Italy has quarantined almost 16 million people in the Lombardy region. About a third of Italy’s gross domestic product (GDP) comes from the regions of Lombardy and Veneto. In Europe, Germany has also reported 3,675 cases while France stands at 3,661 cases. The UK has about 798 cases so far. All affected countries have taken extra steps to protect people from the virus and almost any step that is taken putting the economy in the back seat. The flight operation in Europe is near to halt, the

tourism industry is facing the worst challenge. Borders are being sealed, schools are closed and major sporting events are canceled.

In Asia, South Korea is the most affected country after China that has reported 7,979 cases so far. South Korea’s industrial cities including Busan, Ulsan, and parts of South Gyeongsang province are at the risk of lockdown. The reports on the spread of the virus in Africa have also started to come in until now 18 African nations have reported confirmed COVID-19 cases.

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Stock Markets Fallout

The Coronavirus is weighing heavily on the global financial markets. Last week the US stock markets faced the worst sell-off since 1987. The Dow Jones dropped over 2000 points making it the largest single-day drop in history. The S&P500 fell by about 6 percent while the NASDAQ composite index was down by 5.4 percent.

Elsewhere in Europe the stock markets also felt the heat, STOXX 600 and Germany’s DAX both fell by 3 percent, France’s CAC40 was down 4 percent and the UK’s FTSE100 dipped down nearly 3.5 percent.

Last week in Asia, Japan’s Nikkei 225 also dropped nearly 6 percent, the lowest level since November 2016. South Korea’s benchmark Kospi dropped 3.6 percent at one point the drop was more than 7 percent.

However, as of 13 March 2020 most stock markets briefly recovered from the recent worst sell-off. The Federal Reserve’s policies in the coming days will also play an important in the recovery of the stock markets. A further cut to the interest rate may favor the markets. A lower interest rate in the present scenario will favor the businesses in borrowing from the banks to recover from the economic effects of the outbreak.

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