2019-nCoV’s Potential Impact on the Global Economy

With the latest global outbreak of a disease not fully understood, the world is taking precautions to prevent catastrophe. Looking back at similar outbreaks, one can get a sense of how the current situation may unfold. While each disease is different and how the world reacts will depend on varied political and scientific factors, it is important to predict the actions of global authorities.  Monetary authorities must not only predict their effects, but also determine what can be done to prevent an economic crisis as well.

The 2019-nCoV is a new strand of Coronavirus, related to other viruses such as MERS and SARS, according to the CDC. The first known case comes from Wuhan, China and Chinese health officials posted the full genome of the virus in databanks dedicated to the storing and sharing of genetic codes. The CDC is doing the same once they complete their testing of patients in the U.S.; preliminary data shows that the Chinese and U.S. virus’ genomes are similar, suggesting a single origin case. The CDC also warns that although there are infected people with little to no symptoms, the fact that some of the infected patients have become severely ill and died makes the 2019-nCoV a “serious health threat” (Centers for Disease Control and Prevention). Note also that, while this threat exists, it is not as lethal as influenza, which is common in the United States, especially this time of year. This information is guaranteed to affect consumer and business behaviors (such as the extreme increase in demand for facemasks, changing of travel plans, and a predicted decrease in economic growth going into the new year), the questions that need to be answered are by how much and for how long (The Economist).

In order to gain insight on the potential economic impacts of the situation, we look back on history. In 2003, the spread of SARS, another coronavirus, slowed economic growth when cases of the virus were at their peak, but once the virus was contained, the global economy rebounded. The Economist reported on January 29th that ultimately, China’s methods of controlling 2019-nCoV and the time it takes to do so is what will determine the disease’s economic impact, noting that this outbreak seems less lethal than the 2003 SARS virus (The Economist).

The Hubei Province, 2019-nCoV’s ground zero, contributes 4.5% to China’s GDP; isolation of the province will substantially affect China’s economy. Even outside of the isolation zone, Chinese residents nationwide are being told to avoid crowds and most residents have locked themselves in their houses. This would take a blow to consumption any time of the year, but with the outbreak occurring during the Chinese New Year, the impact is more substantial. Additionally, when evaluating the potential impact of 2019-nCoV in relation to SARS, it is important to note that in 2003, China contributed 4% to global GDP, a figure that is now close to 16%. Current estimates propose that China’s growth could drop from 6% in Q4 2019 to 2% in 2020’s 1st quarter; which would be the country’s lowest growth rate in decades. However, a strong rebound is also expected once the disease is under control (The Economist). 

Global economic outlooks are broad, but a more in-depth look at one sector in particular can provide insight to how one’s everyday life might be affected. Take, for example, aviation, which accounted for roughly 7.5% of the world’s GDP and employed approximately 32 million employees globally in 2011. The airline industry is extremely volatile and responsive to external socioeconomic factors. In fact, the SARS outbreak in 2003 proved a difficult time for the airline industry, since it was already trying to recover from the devastating attacks of September 11, 2001 (Durmaz, Ateş, & Duman, 2011). With reports coming out of what airports infected passengers passed through, it is not unreasonable to assume that worried passengers passing through those hubs are cancelling or rescheduling flights. Airlines all over the world also are cancelling flights in and out of China and allowing for passengers to cancel certain tickets free of charge due to fears of spreading the disease.

In conclusion, it’s not the 2019-nCoV outbreak that will have a profound impact on your life, assuming you follow hygiene best practices such as washing your hands often and properly and avoiding touching your face after being out in public (Centers for Disease Control and Prevention). Rather, China’s response (or lack thereof) to the disease’s origin and spread are what will have an impact on day-to-day life. Only once a treatment is released and the disease is fully contained should life return to normal. Until then, expect to hear reports about economic fluctuations this quarter and some grim outlooks, but know that an uptick is coming and that this virus is not going to cause the next depression; markets are volatile and this is just another factor in their fluctuations.

Works Cited

Centers for Disease Control and Prevention. (2020, January 27). Novel Coronavirus 2019 Situation Summary, Wuhan, China. Retrieved from https://www.cdc.gov/coronavirus/2019-nCoV/summary.html

Durmaz, V., Ateş, S. S., & Duman, G. (2011). CSR As A Tool To Cope With Economic Crises:

The Case Of TEI. Procedia - Social and Behavioral Sciences, 24, 1418–1426. doi: 10.1016/j.sbspro.2011.09.098

The Economist. (2020, January 29). China's coronavirus semi-quarantine will hurt the global economy. Retrieved from https://www.economist.com/international/2020/01/29/chinas-coronavirus-semi-quarantine-will-hurt-the-global-economy