How COVID-19 viruses the world economy

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For many business people around the world, everything that happens around the coronavirus epidemic produces a strong cognitive dissonance. And no one knows how it will end.

On the one hand, the entrepreneurs realize that the situation is really bad – the number of deaths increases daily, we have closed borders, dysfunctional supply chains, murdered businesses. On the other hand, economists tell them that the epidemic will reduce China’s economic growth in 2020 by only up to a percentage, ie marginal, and the global advance will be the same, with or without this virus. So the question arises – is it a global crisis or a trivial storm in a kettle in Wuhan? Many are still struggling to find the answer.

The strangely calm economic forecasts are based on the premise that draconian measures imposed globally to isolate the contaminated will defuse the transformation into a pandemic, from which the economic recovery will be robust. This happened after the pandemic caused by the Severe Acute Respiratory Syndrome (SARS) from 2002-2003.

Bloomberg Economics analysts assume that China’s gross domestic product (GDP) will grow by 5.7% in 2020, down marginally from 5.9%, as expected before the outbreak of the coronavirus outbreak. In a more pessimistic scenario – it will only increase by 5.6% if the measures under control do not take effect until the second quarter. Outside of China and neighboring countries, it is difficult to foresee what the impact will be, analysts say.

The scenario of a quick recovery can be correct. While the number of new infections continues to grow, however, the daily rate of contaminated ones is a slight setback, if we believe the official figures. But, as well, the situation could get worse. The virus could spread exponentially, reaching countries that do not have the resources or are not as willing as China to impose a strict sanitary cord.

Businesses that are not stable enough will go bankrupt if the epidemic continues and escalates. Also, investors and executives will be less willing to do business in a place perceived as a killer virus incubator.

For now, no one can know for sure how the story will continue. Rapid control and escalation of the virus are equally possible, so growth scenarios may be completely different, analysts at Bloomberg Economics say in a report released on January 31. One thing is certain – the coronavirus epidemic is already severely affecting business.

On February 4, carmaker Hyundai Motor announced it was suspending production at its South Korean factories due to missing parts from its Chinese suppliers. Fashion brand Levi Strauss & Co. had to close the Wuhan store that was opened just four months ago. Apple, for which China generates a quarter of its operating income, announced on February 1 that it is temporarily closing all its offices and stores.

It is also possible that the disease may become more problematic outside of China than within it. In Africa, there are very likely to be contamination cases without this being said, acknowledged. The US is in a better position than Africa but remains vulnerable.

Even though the US president praised in an interview with Fox News that he managed to keep the virus under control, the administration largely reorganized the structure that handled this kind of epidemic. In May 2018, an article in The Washington Post announced that a senior White House official responsible for pandemics, Rear Admiral Timothy Ziemer, had left the Administration and was no longer replaced.

There is growing evidence that the new virus is less lethal than SARS. Instead, it is much more contagious. This means that it will make the number of deaths not impressive, only that, being extremely contagious, it will extend quarantine and all measures of social isolation.

That’s about thinking now. Success in the fight against the virus will depend not only on the people but also on its characteristics, which are not yet fully known, as Dr. Mark Denison, director of the Division of Pediatric Infections at the Vanderbilt University School of Medicine, also points out.

The number of people who can die from the virus can only be deduced by taking into account its reproductive capacity and its degree of lethality – that is, the percentage of people who die after being infected. The Spanish flu, for example, which killed about 50 million people after the First World War, was neither very contagious nor extremely lethal. It just broke out “in a context where a very large mass of people from all over the world became infected,” notes C. Brandon Ogbunu, a professor at Brown University.

“Thus, a mortality rate of 1-2% can turn into a very large number of people,” he adds. Spanish influenza is the nightmare scenario if the virus spreads without restriction among vulnerable populations.

Coronavirus control is a thorny issue that will become even more difficult if the measures are taken so far prove to be insufficient. The ethical issue is how much the civil liberties of a group can be restricted for the sake of a common, global good.

The measures taken by the Chinese authorities impose a real cost, both human and economic. In Wuhan, the capital of Hubei Province, there are hardly any stocks of drugs and test kits. The feeling of being trapped in a quarantined area is fueling resentment that can be understood and can explode anytime in protest (as happened during the Ebola epidemic in 2014, in Monrovia, the capital of Liberia).

Chinese President Xi Jinping is confident that the current control measures, however unpopular, will lead to an end to the epidemic and allow the resumption of daily life and normal economic activity. However, it is nerve-wracking that so many countries break ties with China, which it will directly settle in GDP.

The Trump administration announced on January 31 that foreigners who have been to China for the past two weeks will not be able to enter the US. China’s Foreign Ministry accuses the White House of spreading panic. But Americans are seeing these restrictions with good eyes, especially since the US has so far managed to keep the situation under control, and the few cases of infected people have not multiplied.

However, there is a chance that this new virus will further weaken the US-China ties, driven by the economic war triggered by the Trump Administration and escalating military rivalry between the two countries.

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