The Prediction of Economic Impacts of the COVID-19

The COVID-19 also known as Novel Corona Virus Pneumonia has spread all across the globe posing huge socio-economics consequences for all economies. According to latest reports as of March 11, the epidemic has spread to about 107 countries and infecting over 118,000 individuals with at least 3000 deaths have been attributed to the disease.

The effects on the world economy since the spread of the virus are already causing significant decline in the economic performances. The slow economic growth, reduction in economic activities and low trading in stock markets around the world are some of the visible consequences of COVID-19.

Economists are already predicting that the economic impacts will be enormous and widespread throughout different sectors across the globe. The spread of COVID-19 has already affected different sectors of the economy especially international tourism and air travel.

China’s economy looks more important to the world

Major economic hubs and stock markets including Shanghai, New York, Paris and London stock exchanges have been hit by the outbreak with statistics showing the markets closing at low trading values. Stock markets have plunged and the sharp fall in world oil prices are creating anxiety among international markets.

Multinational companies and organizations around the world are worried about the spread and outbreak while reports of further spread has led to decline in trading activities and halted their operations.

Investors are also analyzing the situation and are concerned about the epidemic which is raising questions on the control of the disease around the world, making it difficult for investors to make appropriate decisions. The rise in new cases of infections in different parts of the world is posing huge concerns for economies around the world.

Amid rising uncertainties, the world economy is experiencing a lower growth. As a key player in global economy, China’s importance cannot be underestimated. China’s economy will have impact on major companies and investors throughout the world on a mega scale. Companies and organizations trading with China will also be influenced because of decline in demand and supply from China.

Supply chains, trade, cross border activities, mobility and transportation have been affected by lockdowns and factory closures. And expenditure on catering and tourism has reduced on a global scale due to the sharp decrease of demand from China in the global market.

Besides, people around the world are refraining from international traveling and touring activities amid the outbreak. More than 200,000 flights to and from China have been canceled and within China the flights have declined by 80 percent. International airlines are suffering throughout the world and major airlines have stopped regular flights, which is a huge blow to the aviation industry in the world.

Are we witnessing a global economic recession?

In 2003, SARS had an overall 2 percent effect on the global economy. Now things have changed and China is the second largest economy on the world stage. So the decreasing economic activities in China during the epidemic, especially in manufacture sector, will have more prominent impact on the world. Nevertheless, like what happened during the SARS epidemic, the negative impacts will only last for one or two quarters and China will regain its momentum in the rest months of the year.

It can be predicted that China may suffer economic decline in the first two quarters but will gradually keep up with the momentum by the third quarter. This assumption is made based on both external and internal factors.

Since 2003, the global share of China’s economy has increased 10 folds, which makes China an important player in determining the global market and currency fluctuations.  Most of world economies depend on Chinese tourists, Chinese factories for production and Chinese consumers for sales. Any economic shock to China will hit and alter the global market performance and growth.

China is a responsible economic power and understands its role in the regional and international markets. The Central Government of China is cutting taxes on companies to ensure support and smooth operations while the companies are providing bonuses for employers to work.

Currently, the Chinese Government works to make the country shake off the epidemic and resume production and normalize life as soon as possible.

The best way is to enable people to return to normal life by controlling the spread and risks of COVID-19. Short term lending to companies as China has done can enable the companies to continue payments and can help them realize quick recovery after the outbreak is contained.

Most of the world economies are likely to witness slower economic growth in the first half of 2020 as we have seen in the first quarter already.

But the priority of other countries is to contain and control the virus outbreak which indirectly affects the economic growth. The economic consequences due to COVID-19 are expected to be temporary. Most of the economies are expected to recover from slower economic growth after containing the spread.

Global economic recession according to most economists is unlikely to happen given the current circumstances, but future events will clarify the scope and socio-economic impacts of the COVID-19.

The author is associate professor at Leshan Normal University and senior research fellow of Center for Trans-Himalaya Studies