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Economic Impact of Corona Virus

The gushing economic repercussions of the Corona virus recrudescence in China is rapidly manifesting across the world which is evident by the recent announcements by big businesses like Microsoft, Apple, and many more reflecting how the virus is harrowing consumer behavior and business sentiment.

Many analysts and thinkers have compared this epidemic with the 2002 SARS epidemic, which didn’t have a very profound impact on the financial markets. This comparison is not quite right, since the dependence and reliance of the global market and the importance of China in the world economic system has ginormously increased. China constituted 4.31% of the world’s GDP in 2002 and currently the numbers are as high as 16%.

Global markets have been benumbed by Apple’s recent cut of its sales forecast due to the potential impact of the virus on the supply chains as well as the plunge of demand in China. Further, there has been a major sag in the German investor sentiment due to apprehensions that the outbreak will affect the germinal recovery in global manufacturing. A major frangibleness for the American and European companies is their increasing dependence solely on factories in China for parts and materials. The activity of Chinese manufacturing factories have plunged due to the outbreak and shows no sign of resurgence which may stifle down thousands of companies and force them to temporarily shut assembly and manufacturing plants. A few companies already have temporarily stopped their production, like Fiat Chrysler Automobiles NV, who recently announced that it is temporarily halting its production at its car plant in Serbia isn’t able to receive parts from China.  Even the large Indian drug sector has also been hit, since Indian drug producers depend upon China for around 70% of the active ingredients used in making their medicines. As a consequence, India, which is the biggest global supplier of generic drugs, has restricted exports of 26 ingredients and the medicines made from them and hence, there could be a global shortage if the epidemic continues. Further, the 30 billion dollar domestic smartphone market, world’s second largest now, will also see major disruptions. Apart from these, there are a whole lot of other sectors dependent on China like toys, furniture, computers, cars, etc.

Joining the bandwagon of companies cutting down their growth forecast, Mastercard announced a 2%-3% fall, because mostly people are avoiding international trips. Many companies have suspended international tours of employees, fearing the virus. Even the payments firm Visa announced a fall in its growth, amid the fall in cardholders’ spending overseas.

Another factor that may affect companies is the sag in investor sentiment. Investors are becoming more reluctant to lend companies money. Banks have also rigidified lending norms. Stocks of major American Banks like Bank Of America, and Citigroup all have majorly plummeted because of the investors thinking concerns of the outbreak may have a huge effect on the banks.

However, many companies and businesses have also shown a bit of optimism and hope for the situation to get better. Companies like Volkswagen announced that it expects its deliveries to be in line with last year’s. Apple has also shown hope that the situation in China will improve, with apple CEO Tim Cook telling an American news channel When you look at the parts that are done in China, we have reopened factories.Many companies also are expressing about the large amount of business that they will have once the outbreak fades out.

The outbreak also provides an opportunity to countries like India to expand their exports, although the complications in the Indian manufacturing ecosystem make it hard for India to benefit from the global disruption in trade. Hence, in order to tap in the gains due to this disruption, the Make In India campaign must be boosted and incentives of lower labor costs must be worked on. Investments from Chinese companies have also helped the local manufacturing. Chinese companies are also expanding their manufacturing in India. Automobile companies like SAIC, and GM motors have announced huge investments of thousands of crores and other Chinese companies like TCL Corp, and TV maker SkyWorth have announced plans to manufacture in India.

Abhinandan Kaul

[email protected]

Feature Image Credits: BBC

Feature Image Caption: Corona virus has majorly impacted global economy

 

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