How Will Coronavirus Affect World Economy?

Date: Thurs, 13 February 2020

Author: Insa Wrede





Lesser consumption, idle factories and broken global supply chains are indications of the world economy affected by Novel coronavirus. Beijing pushed back the opening of the stock markets as safety measures. When it re-opened, stock prices crashed. However, it stabilized the day after.

Beijing provided the financial system a remarkably high injection of 1.2 trillion yuan (€156 billion, $171 billion) to sustain domestic money market and banking system as a precautionary. Import duties on goods crucial in battle against the disease were eased.


Closed offices and factories


Chinese consumption also took a downturn due to the outbreak, besides the hit on stock markets. New Year's events were cancelled, tourist attractions and cinemas were shut down. Travel industry is also greatly affected. Countries issued travel warnings and flights suspension to China. Lufthansa and its subsidiaries Swiss and Austrian Airlines cancelled their connections to Beijing till February 29. China's largest oil refinery cut production by around 600,000 barrels a day due to shrinking fuel demand.


Supply chain disruptions


The outbreak impacted the global manufacturing supply chains, affecting the car industry. Hyundai, said it closed all car factories in South Korea due to shortage of components manufactured in China. Plants in Europe and the United States are soon compelled to close entirely as they depend on China for supplies. In Germany, VW and BMW announced temporary closure of their production plants within China. Industry analysts predict the impact of the virus on car sales and parts procurement could be bigger than from the outbreak of the SARS in 2003. 


Too early for a true analysis


Experts views discussions on significance of economic consequences as premature, as the entire economy besides tourism industry would be offline anyway due to their National holidays. Influences on employment and ongoing production will only be apparent starting next week. Chinese government extended the holidays till February 9 as majority workers reside in Wuhan. Production and the impact on international supply chains by the virus will be apparent then.


Hitting the supply chain


"We see no signs as of now that supply chains will be completely disrupted, even if there are delays," said Gerhard Wolf, head of foreign trade at the Association for Wholesale, Foreign Trade and Services.

So far, there is no trace of panic among German companies, says Hildebrandt from the German Chamber of Commerce in Beijing. "At the moment they are acting rather calmly, though plans are being drawn up for how to deal with the situation."

The German Institute for Economic Research, President Marcel Fratzscher reported, "It is still far too early to be able to carry out a serious analysis of the economic effects of the coronavirus." "If the spread of the coronavirus in China and worldwide can be successfully contained, then the economic costs should be limited and be limited to a short-term loss of production in China."


Stopping the supply chain


However, if production shutdown in China prolongs, international supply chains would be at risk.

"China is significant as a supplier to the rest of the world," said Gern. It could interrupt supply chains in the chemical, automotive, textile and electronics industries, warn Allianz economists. International companies would not have adequate supplies and resort to find alternatives or shut down.

South Korean manufacturer Hyundai Motor is a classic example. They announced that suspension of all production in South Korea befalls. The reason being, the cable harnesses required for production, did not arrive.



Keyword:, Sterling House Trust, SHT