How will the coronavirus affect the world economy?
Insa Wrede
February 6, 2020
Less consumption, idle factories, broken global supply chains. It's not just the Chinese economy that is suffering from the spread of the coronavirus — but the moment of truth is yet to come.
Image: Getty Images
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The coronavirus epidemic is spreading further in China and Chinese experts believe that it could peak in 10 to 14 days. Around 45 million people in the Chinese province of Wuhan are cut off from the outside world. In order to curb the spread of the virus, Beijing has extended the Chinese New Year holiday, and pushed back the opening of the stock markets. When it finally opened on Monday, stock prices crashed. They, however, stabilized again on Tuesday.
As a precaution, Beijing had given the financial system an unusually high injection of 1.2 trillion yuan (€156 billion, $171 billion) to keep the domestic money market and banking system functioning. In addition, import duties on goods that are important in the fight against the disease were eased.
Closed offices and factories
But it's not only the stock markets that have been hit. Chinese consumption has also plummeted as a result of the outbreak. Large New Year's events were canceled; tourist attractions and cinemas were closed. The doors remain closed at around 2,000 Starbucks, hundreds of McDonald's restaurants, 130 Uniqlo shops and at all 30 Ikea stores.
The travel industry has also been badly affected. Several countries issued travel warnings about China; some airlines even suspended flights to China. Lufthansa and its subsidiaries Swiss and Austrian Airlines canceled their connections to and from Beijing until February 29. The Chinese authorities urged its own population to postpone travel abroad and prohibited domestic travel groups.
At the post office in Wuhan parcels are disinfected before they go outImage: picture-alliance/dpa/C. Min
Most factories and offices will remain closed this week. Additionally, China's largest oil refinery cut production by around 600,000 barrels a day due to shrinking fuel demand.
Supply chain disruptions
The outbreak of the coronavirus is meanwhile rippling through the global manufacturing supply chains, affecting especially the car industry. The world's fifth-largest carmaker, Hyundai, for example said on Wednesday it had to close all its car factories in South Korea because it had been running out of components made in China. The carmaker is short on supplies of engine wire harness, and said is was looking for a new supplier.
Executives at a number of carmakers and auto parts suppliers warned that plants in Europe and the United States were just weeks away from being forced to close.The entire industry depends on a global network of suppliers, with parts originating in China often passing through companies in several countries before being built into cars in Europe and the US.
In Germany, carmakers such as VW and BMW have announced the temporary closure of their production plants in China, saying they expect to resume production next week in accordance with guidelines from authorities. However, those plans could be reviewd if the coronavirus continues to spread.
Industry analysts already say the impact of the virus on car sales and parts procurement could be bigger than from the outbreak of the SARS epidemic in 2003.
Learning from SARS
When SARS hit China 17 years ago, domestic trade suffered significantly and stock markets fell. However, the global economy is now much more interconnected and the Chinese economy is much more important. At the time China's share of the world economy was only around 5%, today it is more than 16%.
Now the world's second-largest economy is an important export market for German products, an important production location for German industrial companies and the starting point for many global supply chains.
In Wuhan, new emergency hospitals are going up quickly to treat patients Image: Getty Images/AFP/Str
The ifo Institute's economic expert Timo Wollmershäuser believes that "the economic consequences will be greater than the SARS epidemic." That crisis, which lasted 6 months, cost China about 1% growth in gross domestic product (GDP), a number so small that it was hardly reflected in the German figures. "Since then, the country's economic importance has grown, the infection rate is greater and the Chinese government has reacted harder," said Wollmershäuser.
Ifo has calculated that a drop of 1% in China's GDP due to the coronavirus could cut German GDP by 0.06% now.
Too early for a true analysis
Many experts believe that it is too early to talk about the extent of economic consequences. Jens Hildebrandt, the director of the German Chamber of Commerce in Beijing, told DW that the country is at a practical standstill anyhow because of the Chinese New Year and spring festivities. "All factories close for three to four weeks," he added. Thus, even under normal circumstances, the entire economy — except for the important tourism industry — would be offline.
Coronavirus: Timeline of the global spread of COVID-19
Since the first cases were confirmed in December 2019, the flu-like COVID-19 virus exploded into a global pandemic, killing tens of thousands of people and infecting around 800,000. Scientists scramble for a vaccine.
Image: picture-alliance/dpa/SOPA Images/A. Marzo
Pneumonia-like virus hits Wuhan
On December 31, 2019, China notifies the World Health Organization of a string of respiratory infections in the city of Wuhan, home to some 11 million people. The root virus is unknown and disease experts around the world begin working to identify it. The strain is traced to a seafood market in the city, which is quickly shut down. Some 40 people are initially reported to be infected.
Image: Imago Images/UPI Photo/S. Shaver
First death in China
On January 11, China announces the first death from the coronavirus — a 61-year-old man, who had shopped at the Wuhan market, dies from complications with pneumonia. Like SARS and the common cold, scientists identified that the new virus is in the coronavirus family. It is temporarily named 2019-nCoV. Symptoms include fever, coughing, difficulty breathing, and pneumonia.
Image: Reuters/Str
Virus reaches neighboring countries
In the following days, countries such as Thailand and Japan begin to report cases of infections in people who had visited the same Wuhan market. In China, a second fatality is confirmed in the city. By January 20, three people have died in China and more than 200 are infected.
Image: Reuters/Kim Kyung-Hoon
Millions under lockdown
China places Wuhan on quarantine on January 23 in an attempt to limit the spread of the virus. Transportation is suspended and workers attempt to quickly build a new hospital to treat infected patients, which total over 830 by January 24, as the death toll climbs to 26. Officials eventually extend the lockdown to 13 other cities, affecting at least 36 million people.
Image: AFP/STR
A global health emergency?
More and more cases are confirmed outside of China, including in South Korea, the US, Nepal, Thailand, Hong Kong, Singapore, Malaysia and Taiwan. As the number of infections rises, the World Health Organization on January 23 determines that it's "too early" to declare a global public health emergency.
Image: Getty Images/X. Chu
Coronavirus reaches Europe
On January 24, French authorities confirm three cases of the new coronavirus within its borders, marking the disease's first appearance in Europe. Hours later, Australia confirms four people have been infected with the respiratory virus.
Image: picture-alliance/dpa/S. Mortagne
First cases confirmed in Germany
On January 27, Germany announces its first known case of the virus — a 33-year-old in Bavaria who contracted it during a workplace training with a visiting Chinese colleague. He is put under quarantine and observation at a Munich hospital. The following day, three of his colleagues are confirmed infected. The death toll in China reaches 132, with around 6,000 infected worldwide.
Image: Reuters/A. Uyanik
WHO declares global health emergency
On January 30, the UN's World Health Organization (WHO) declares coronavirus a public health emergency of international concern in a bid to protect countries with "weaker health systems." However, WHO Secretary-General Tedros Adhanom Ghebreyesus does not recommend trade and travel restrictions, saying these would be "an unnecessary disruption."
Image: picture-alliance/KEYSTONE/J.-C. Bott
First death outside China
The first death linked to the novel coronavirus outside of China is reported in the Philippines on February 2. A 44-year-old Chinese man had traveled from Wuhan to Manila before falling ill and being taken to hospital, where he later died of pneumonia.
Image: Getty Images/AFP/T. Aljibe
Bad ending to a cruise
Also on February 3, the cruise ship Diamond Princess is quarantined off Yokohama in Japan after cases of the new coronavirus were found on board. As of February 17, the number of people infected has grown to more than 450, the largest cluster of cases outside of China. Several of the 3,700 passengers and crew onboard the ship are being or have been flown back to their home countries.
Image: picture-alliance/dpa/kyodo
Italy under quarantine
Cases in Italy rise dramatically, with 77 deaths and thousands of confirmed cases by March 3. Many countries instigate travel restrictions to northern Italy and tourist numbers plummet. On March 8, the Italian government put the entire Lombardy region into quarantine, affecting 16 million people. March 10 sees 168 fatalities in Italy, the highest in a single day.
Image: Reuters/R. Casilli
Economic woes
European and US stock markets slump on March 6, leading to the worst week since the 2008 financial crisis. The effect on global business has been significant, with many companies reporting losses and the tourism industry and airlines badly hit. The EU pledge €7.5 billion ($8.4 billion) on March 10 in an investment fund to try to stop the Eurozone falling into a recession.
Image: picture-alliance/Jiji Press/M. Taguchi
WHO declares outbreak as pandemic
As worldwide cases top 127,000 and deaths pass 4,700, the World Health Organization designates the global outbreak as a "pandemic" on March 11. US President Donald Trump announces a travel restriction on people coming from the Schengen Zone in Europe, annoying the EU. German Chancellor Angela Merkel announces that in Germany, 70% of the population could get the virus.
Image: picture-alliance/Photoshot
Public life on hold in Europe
On March 14, Spain joins Italy in imposing a near-total nationwide lockdown to prevent the virus spreading. The population of 46 million is told not to leave their homes unless for essential tasks. In France, cafés, restaurants and non-essential shops are closed as of March 15. Many public events in Germany are cancelled and schools close.
Image: picture-alliance/dpa/AAB. Akbulut
International travel severely restricted
As of March 15, many countries impose strict travel bans or restrictions in an attempt to stop the spread of Covid-19. For example, New Zealand and Australia require all international passengers to self-isolate for 14 days after arrival in the country. The US extends a European travel ban to include the United Kingdom and Ireland.
Image: picture-alliance/Photoshot
Germany imposes partial lockdown
In a landmark televised address German Chancellor Angela Merkel announces far-reaching restrictions on everyday life on March 22, banning meetings between more than two people not from the same household outside of the workplace. The country has a surprisingly low death rate, a phenomenon attributed to a high level of testing, and a high number of intensive care beds.
Image: picture-alliance/EibnerT. Hahn
Virus strikes at top as UK locks down
On March 23rd Britain becomes the latest country to impose restrictions on personal freedoms, with people only allowed to leave their homes in a limited number of circumstances. Prime Minister Boris Johnson is diagnosed with the viruson March 27, as well as heir to the throne Prince Charles on March 25. Meanwhile, there are complaints that not everyone is taking social distancing seriously.
Image: picture-alliance/R. Pinney
Grim milestone for the US
On March 27 the US overtakes China in terms of the number of people infected, making it the country with the most cases of COVID-19. This came as President Donald Trump claimed that the nation would get back to work "pretty quickly." At the same time, it emerged that more than 3 million Americans had lost their jobs due to the pandemic. New York is worst-hit, with a hospital ship sent to help out.
Image: picture-alliance/Photoshot/J. Fischer
Spain's surging death toll
Spain also overtakes China in the number of COVID-19 cases on March 30, as the government toughens the severity of its lockdown. All non-essential activities are halted. Only Italy has a higher death toll than Spain. Most affected is the capital, Madrid. With funeral services overwhelmed, officials turn the Palacio de Hielo ice skating rink into a temporary morgue.
Image: picture-alliance/Geisler-Fotopress
More than a million
On April 2nd the Johns Hopkins University announced on Thursday that there were more than a million confirmed coronavirus cases around the world. The US is the most affected with three times the number than China, where the virus emerged in December. Over 50.000 people have died — and the outlook remains grim.
Image: Reuters/J. Redmond
UK PM Boris Johnson hospitalized
The 55-year-old was admitted to the intensive care unit at London's St Thomas hospital on Monday evening (6.4.) and was given oxygen treatment after his condition worsened. He had been diagnosed with COVID-19 on March 27.
Image: AFP/10 Downing Street
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How the coronavirus outbreak is impacting employment and ongoing production will only become apparent from next or the week after next, according to Hildebrandt, since the Chinese government has extended the holidays until February 2 and in some cities until February 9.
The reason is that a large part of the factory workers come from the region around Wuhan, which is almost completely quarantined, says Hildebrandt. Only in the coming week will it become clear how many workers will return to the main production locations in the Shanghai and Beijing areas and in southern China, and to what extent production and thus the international supply chains will be affected by the virus.
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 (BGA). His credo: No need to panic.
Currently Germany's VW Group generates about 40% of its sales with ChinaImage: P. Lopez/AFP/Getty Images
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 (DIW) is also taking a careful approach. "It is still far too early to be able to carry out a serious analysis of the economic effects of the coronavirus," said DIW President Marcel Fratzscher. "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, should the production stops in China last longer, the international supply chains would be at risk, warns Klaus-Jürgen Gern from the Kiel Institute for the World Economy.
"China is significant as a supplier to the rest of the world," said Gern. A long standstill could interrupt supply chains in the chemical, automotive, textile and electronics industries, warn Allianz economists. International companies would no longer get the parts they need and would have to find other suppliers or shut down production.
One that has already been hit is the South Korean manufacturer Hyundai Motor. The company announced on Tuesday it would suspend all production in South Korea later this week. The reason for the suspension is that the cable harnesses required for production, which Hyundai usually gets from China, are just not coming.
