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COVID-19 impact on global economies

Mar 05,2020 - Last updated at Mar 05,2020

After more than 60 days of the outbreak of a new coronavirus known as COVID-19, the world had been discovering new ways in China and its health system that remarkably managed to impose quarantine on whole cities within days to cease the spread of this disease. The day China announced some COVID-19 cases, the Chinese authorities began building specialised hospitals that were completed in less than 10 days, and the Chinese media promoted some snapshots of the construction that lasted day and night to show the Chinese power and to restore the Chinese people’s confidence in their government.

Many experts believe that one of the unexpected events that has caused turmoil in the global economy since the beginning of this year has been the emergence of coronavirus. Several warnings issued by international economic and financial institutions have revealed negative economic impacts due to the outbreak of the coronavirus around the world, which will affect the world economies for at least 2020. 

The warnings came due to lower global consumption with less global spending as the Chinese products constitute more than 65 per cent of the world production. This has resulted in reduction of air trips and tourism activities since the beginning of January, with estimated losses of airline companies to amount to $25 billion. The rise in the number of coronavirus infections, in addition to the constant increase in death cases, had lowered the expectations of Chinese and global economic growth in 2020.

These cuts of global economic growth have ranged from 0.4 per cent to 1.5 per cent. In other words, this percentage stands for a decrease in global GDP by $400 billion to $1 trillion in the first half of 2020. The negative economic forecasts are linked to several factors, the most important of which are the lack of data and concrete information about the exact cases of COVID-19 and the suitable treatment as well as the cost of each patient on the national and international economies. 

The outbreak of coronavirus was considered a global crisis. However, the most affected country is China, whose economy outlook has been downgraded to 5.2 per cent from 6 per cent in 2020. The spread of the virus coincides with the current fragility of the global economy, which will mean double trouble for many countries including the developed ones. Some financial experts said the impact of the global epidemic will be multiplied and exemplified by the occurrence of major disruptions in the supply chain and a steady decline in investor confidence.

The spread of the new coronavirus has challenged governments and health authorities after the World Health Organisation declared a state of emergency to prevent and control this disease. The declaration of a state of emergency aims to coordinate efforts and strengthen international cooperation to maintain global health security.

It is difficult to quantify the total value of losses and determine the size of the final impact of this virus on both the Chinese and global levels. In 2003, the SARS epidemic made headlines, and the number of deaths reached 800, which led to widespread unrest in China. Then, China's GDP growth decreased temporarily in 2003 to 9.1 per cent at the peak of the SARS epidemic. Moreover, global growth lost about one percentage point due to decline of economic growth of China. Yet, by the end of the year it was about three points higher than before the outbreak of SARS. Fear of infection is the main reason for the decline in retail and travel sales because people avoid crowded places.

Shares in the Chinese market fell by 14 per cent on the Shanghai and Shenzhen stock exchanges, posing a challenge for investors and companies to survive or escape. Some economic analysts believe that China had benefited from the decline by buying investor shares at low prices.

Oil prices were negatively affected by a decrease of 23 per cent during the February 2020 trading before rebounding upward due to talks about the possibility of new production cuts by OPEC. Because of the decrease in Chinese consumption by million barrels per day in addition to demand decline for jet fuel due to the disruption of global travel activities, the world economy is expecting further economic and financial issues and slower growth. 

China, which is the second largest oil importer in the world, has injected hundreds of billions into Chinese financial markets to provide liquidity and stimulate markets, and the People's Bank of China reduced the general interest rate on loans to 4.05 per cent. Since many factories have been shut down in China in the past two weeks, the direct effect is not on the Chinese alone but it extends far beyond China’s borders since many international companies have their industries and factories in Chinese cities due to cheap labour, including Apple and Nissan. Therefore, the shortage of products and spare parts from the Chinese market will affect many countries around the world, and the longer this virus remains unleashed, the more slowdown of world economies, leading to further economic, financial, security and military ramifications.

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