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Coronavirus has global economy on edge

January 30, 2020

The virus has emerged as a major risk to the global economy, still reeling from the impact of US-China trade war. Some of the biggest companies, including iPhone-maker Apple, are bracing for supply-chain disruptions.

People queue up to buy face masks at a cosmetics shop in Hong Kong
Image: picture-alliance/AP Photo/V. Yu

The rapidly spreading coronavirus outbreak in China continues to rattle global markets as investors and policymakers assess the risks posed by the SARS-like virus to the global economy

Stocks around the world took a beating as the death toll from the virus reached 170 and more cases were reported. India became the latest country to report a case — a student in Wuhan, the epicenter of the outbreak.

"Markets will remain highly volatile as long as they feel that they only have an incomplete picture of what is going on, and what is going to happen next," said Agathe Demarais, global forecasting director at the Economist Intelligence Unit.

Read more: Coronavirus: Everything you need to know

China — the world's second largest economy — is called the world's factory and plays a key role in global supply chains. Experts say it is this huge presence of China in the world economy that must be considered while assessing the impact that the virus outbreak could have on the global economy.

"China's economy is very important in the global economy now, and when China's economy slows down we do feel that — not as much though as countries that are near China, or that trade more actively with China, like some of the Western European countries," US Federal Reserve Chair Jerome Powell said.

Zhang Ming, an economist at the Chinese Academy of Social Sciences, projected the outbreak would cut China's first-quarter growth by one percentage point to 5% or lower.

Top companies brace for disruptions

The outbreak has caused limited supply chain disruptions so far because many facilities were already closed for the Chinese New Year holidays, but there are growing concerns that the factories may remain shut for longer than usual. Also fueling concern over the damage to productivity, thousands of factory workers on holidays may struggle to get back to work next week, due to travel restrictions.

The epidemic has been one of the major talking points during companies' earnings calls this week. In the US alone, the word "virus" or "coronavirus" was mentioned by 27 different companies, including iPhone maker Apple, Starbucks and McDonald's, a CNBC analysis showed.

Apple, which posted record earnings on Tuesday, provided a wider-than-usual guidance for the ongoing quarter in view of the uncertainty around the impact of the virus. Virtually all iPhones, Apple's top money-spinner, are made in China.

Tesla expects a delay in production ramp-up at its newly opened plant in Shanghai. German auto-parts maker Robert Bosch said it was monitoring the situation to assess if there would be any delays in restarting production at its two Wuhan facilities, which are closed for the Lunar New Year.

Japan's Toyota has also halted production in China through February 9. McDonalds and Starbucks have shuttered hundreds of stores in the country. Swedish furniture retailer Ikea said it will close all its 30 Chinese stores "until further notice," in response to the outbreak.

Several airlines have suspended flights to China including Lufthansa, British Airways, Air Canada and American Airlines.

"Apart from the risk to human lives, it is likely to hit travel and consumption activities. In a scenario of widespread infection, it could materially weaken economic growth and fiscal positions of governments in Asia," S&P said.

Bigger fallout than SARS

Analysts are already comparing current epidemic to the 2002-2003 Severe Acute Respiratory Syndrome (SARS) outbreak that caused about 800 deaths.

The global cost from SARS was estimated at $33 billion, or 0.1% of world GDP in 2003.

Many say the impact of the current virus outbreak on global growth could be bigger this time as China now accounts for a larger share of the world economy.

ap/uhe (Reuters, AFP)