With tens of millions of Chinese being held in quarantine in their cities, and thousands of factories closed, the Corona virus appears to be heading towards affecting the pace of the global economy. The impact of this virus comes at the present time, in which the world economy is witnessing a very fragile situation, due to the trade war between China and the United States of America last year, in which each side resorted to imposing customs duties on the other party’s goods worth hundreds of billions of dollars, as it caused This is due to the drop in the growth rate of the Chinese GDP, which is already fluctuating, to 6% in 2019, which led to a decrease in the pace of global growth, which fell from 3.6% in 2018 to 3% last year.

Last week, a Chinese official warned that the spread of the virus from Wuhan, which had caused 100,000 casualties across the country, would increase the damage caused by the trade war and might cause more economic damage than the SARS epidemic, which broke out For nearly two decades. With eight major regions and two cities in China subject to closure due to business interruptions, at least until February 9th, the situation is undoubtedly dangerous.

An economist at the Chinese Academy of Social Sciences, Zhang Ming, which is part of the State Council in Beijing, predicted that the annual growth rate in China would drop to less than 5%, from January to March 2020, which is the quarterly rate of growth in China. This is a sharp slowdown compared to the 6% growth the country recorded in the first quarter of the previous year. Goldman Sachs believes that the rapidly spreading Corona virus will cause a 0.4 percentage point decrease in annual growth in the United States during the first quarter of 2020, as the spread of the virus will fluctuate the flow of Chinese tourism to the United States, and exports of American goods are affected by China, although a partial recovery for US growth is expected in the second quarter, but the risks are "still more present".

Avoid risk

Goldman notes that "news flow trends can lead to people taking specific behavior to avoid risk, or the persistent tightening of their financial affairs, as an outbreak of the virus in the United States, or fear of it, may lead to a decrease in the frequency of domestic travel, travel, and shopping."

In 2002, SARS spread to 37 countries, causing global panic, affecting more than 8,000 people and killing about 750 others, and at the present time, the Coronavirus is spreading at a faster rate. The virus is much worse, according to the Economic and Business Research Center, a think-tank, given that patients contract the infection before they develop symptoms. The center says quarantine measures will be largely like "the issue of closing the stable door after a horse escapes, unless it is applied to people who are currently infected."

Emergency

The World Health Organization praised the Chinese authorities, last week, after it announced that the virus represented a public health emergency of international concern, but both the Chinese government in Beijing and the World Health Organization, faced severe criticism for their slow interaction with this situation, despite their knowledge of the rapid spread For the virus. It is not easy to estimate the extent of possible economic harm caused by the virus, but it is possible to use the SARS epidemic as a measure, as the Pantheon Macro Economic Corporation estimated that SARS reduced the quarterly growth rate in China to 1.8%, from April to June 2003, From an average of 2.8%. The CEB says that the indirect effect of global GDP fell in 2003 between $ 30 billion and $ 100 billion, equivalent to between 0.08% and 0.25% of global GDP. “The worst estimate of the effects of the Corona virus is six times the impact that SARS has had on the Chinese economy, given that the Chinese economy is now four times larger than its 2002 position in relation to the global economy, and this will also have a negative impact on global GDP, ranging from Between 1.8% and 6%, based on retroactive estimates of the impact of the SARS virus, ”the council adds,“ with global GDP growing by 2.9% this year, before the impact of the Corona virus becomes clear, it is clear that unless treatment is found And fast vaccination, the fragile recovery that we expect will be in line ».

Archeology in Southeast Asia

Nevertheless, the economic impact will be very felt in Southeast Asia, where China is not only a major trading partner, but a source of vital revenue for tourism. ING Group economist Prakash Sacpal explains this point in a report on Thailand, where the value of the local currency fell by 3.7% against the dollar in January, compared to a rise of 8.6% last year. Tourism accounts for a fifth of the Thai economy, and visitors to China alone account for about a quarter of total tourism revenue. Saqbal says that the sharp drop in tourism spending will lead to a significant decline in the country's current account surplus, which is a measure of the money that comes into the country versus the money spent elsewhere. This surplus was the main reason behind the appreciation of the Thai currency in recent years.

And the tourism revenue has already affected major cruise lines. Where the American company "Royal Caribbean Cruises" says it canceled three flights that were due to arrive in Thailand in February, and this is supposed to affect the revenues of 2020 by about 10 cents per share. A ship owned by the Carnival Corporation, listed in New York and London, was briefly quarantined at the Italian port of Civitavecchia, with 66 British and 6,000 other passengers detained. Shares in "Nerojian Cruise Line Holding" and "Royal Carnival" fell by at least 5% on the New York Stock Exchange, following the Italian detention, before recovering some of its losses on Friday. S&P, the global market watchdog, says regional governments ’decision to extend factories’ shutdowns to control the spread of the virus would be a major blow to China’s gross domestic product.

International companies have begun to find ways to circumvent Chinese companies for electronics parts, although US Trade Secretary Wilbur Ross has made it clear that he believes most companies are unlikely to question strategic trade relations as a result of the outbreak. However, "Apple", "General Motors", "IKEA" and "Starbucks", suspended many of its Chinese operations, as well as many other foreign companies. S & P official Chris Rogers says the commitments to buy $ 33.4 billion of US agricultural exports this year, which Beijing has pledged, as part of the cooling off of the trade war between them, may be difficult to fulfill, but he believes there An opportunity, later in the year, to make up for it. It is expected that this virus will be brought under control soon, and that the overall impact, even on Chinese soil, will be limited.

The economic impact is very felt in Southeast Asia, where China is a source of vital revenue for tourists.

The worst estimate of the effects of the Corona virus is six times the impact that SARS has had on the Chinese economy, given that the Chinese economy is now four times larger than it was in 2002.

Lower expectations

Economic consulting firm "Oxford Economics" reduced its forecast for global growth this year, from 2.5% to 2.3%, and this percentage is the lowest since the financial collapse in 2008. The company says: "Given that the affected areas represent more than 50% of the total Chinese production, We believe this could slow China's GDP growth to just 4% in the first quarter, contrary to our previous forecast of 6%. ”

Aviation sector concerns

Britain and the rest of Europe have already returned from China their nationals with confirmed or suspected viral cases, prompting many airlines to suspend flights to China, and in some cases to Hong Kong. When the United States and Canada saw the first cases of HIV, they warned their citizens against traveling to China.