Economic impact of Corona Virus
Since the first Corona virus outbreak at the start of the
year in the Chinese city of Wuhan, more than 76,000 people across 27 countries have been infected and
more than 2,200 people have died. Apart from the loss of life, corona virus has
had a strong economic impact too.
Global economic consultancy Oxford Economics expects China’s
GDP growth to fall from 6% last year to 5.4% in 2020 due to the impact of the
spread of the virus so far. However, if it spreads more widely in Asia, world
GDP could fall by $400bn in 2020, or 0.5%, it said. The virus’ spread has
already begun impacting corporate and businesses.
The deadly virus has brought a large part of the world's
second-largest economy China to a standstill and its impact has been felt
across industries. A survey by 2 Chinese Universities of over 1000 SMEs in
China found that unless the spread of the virus is curtailed and conditions
improve, 33% of these businesses could run out of cash within a month.
According to the Reserve Bank of India (RBI), although the
virus is likely to have a major impact on global GDP (due to the large size of
the Chinese economy), domestically it is likely to have a limited impact. A limited
number of sectors – specifically the electronic and pharmaceutical sectors –
are dependent on the Chinese economy and hence are likely to be affected more.
However, commodity prices have been affected. Gold, considered a safe-haven
asset, saw a rise in its price by more than 2% on 24th February, 2020 touching
Rs. 43,554 per 10 grams. Oil prices have fallen on supply related concerns,
with Brent Crude prices falling to $56 on 24th February, 2020.
Supply disruptions due to travel/transport ban, global
commodity price movements, levels of inventory, etc. are factors that will
impact companies from India and globally. For example, the International Air Transport
Association (IATA), the trade body for the global airline industry, has
estimated that falling passenger demand would cost the airline industry $29.3bn
(£23.7bn) in lost revenues this year, with global air travel expected to fall
for the first time in more than a decade.
There are also concerns for global supply chains as Chinese
factories remain closed. Jaguar Land Rover warned last week it could soon run
out of car parts at its British factories. Apple told investors earlier this
week that it would fail to meet its quarterly revenue target because of the
constrained supply of iPhones and a dramatic drop in Chinese spending during
the virus crisis.
However, on a positive note, researchers at the National
University of Singapore have said that the virus may not survive as
temperatures rise due to the onset of summer. It, therefore, remains to be seen
for how long the coronavirus outbreak will keep impacting the global economy.
Sources:
Various publications
Disclaimer: The
information provided herein is based on publicly available information and
other sources believed to be reliable, but involve uncertainties that could
cause actual events to differ materially from those expressed or implied in
such statements. The document is given for general and information purpose and
is neither an investment advice nor an offer to sell nor a solicitation. While
due care has been exercised while preparing this document, we do not warrant
the completeness or accuracy of the information. We will not accept any
liability arising from the use of this material. The recipient of this material
should rely on their investigations and take their own professional advice.
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