Will Coronavirus Ruin Todays Economy?
As the concerns about the epidemic that is the Coronavirus continue growing, so do its impact on the economies of various countries. China, being its epicenter, has seen more far-reaching effects than any other nation. In this article, we discuss what the disease is and how it has impacted the financial world, particularly in China.
What Is Coronavirus
Coronavirus definition explains that it is a family of viruses, which mostly infect animals but can be transmitted to human beings. As usual, coronavirus has the same symptoms as flu or even common cold. Nonetheless, consequences are more dangerous if a person doesn’t show the first symptoms.
The initial reports on 31st, December 2019 were that there were multiple cases of a disease whose symptoms resembled those of pneumonia. The World Health Organization (WHO) categorizes this illness as part of the family of two other coronaviruses, namely the Middle East respiratory syndrome (MERS) and the severe acute respiratory syndrome (SARS). It was identified on January 7th, 2020 and given the name COVID-19 because it was a new strain of coronavirus known to man.
Notably, the name coronavirus emanates from the appearance of the virus under a microscope. It resembles the outer appearance of the surrounding of the sun and other stars, which is referred to as the corona.
The coronavirus cases presently stand at over 85,000 globally with over 2,900 people dead. The largest percentage of them have been reported in mainland China.
Effects Of The Coronavirus
Since the first case that was recorded in Wuhan, China on 31st December 2019 and the first death reported later on 11th, January 2020, authorities have put in place measures to help curb its spread. For instance, the entire Wuhan city is on lockdown. International airlines have canceled flights into and out of China with some countries prohibiting the entry of Chinese nationals into their territories.
For fear of getting infected, people in China are self-quarantining themselves. As a result, there has been an 85% drop in the traffic on overland and underground rail systems in major cities such as Guangzhou, Beijing, and Shanghai. Moreover, only 33% of the working population has reported back to work since the Lunar New Year holiday.
Connection With The Financial World
The measures and developments have resulted in a slowdown in the Chinese economy and other global markets. China is the second-largest economy in the world and many companies rely on the products it produces. As such, with the lockdown and people not going to work, manufacturing has been disrupted.
Additionally, the supply chain linking the producers/suppliers of raw materials in China and manufacturers in other countries have also been broken owing to cancellation in flights and other means of transportation. Subsequently, stores are empty and the demand for goods is really high.
As a result, companies are reeling from the effects of the disease. Their stock prices have been on a free-fall causing the stock market to plummet as well. In the last week of February, for instance, the US stock market witnessed the steepest decline since the 2008 financial crisis.
The S&P 500 stock index dropped by 13.3% in just two days, its fastest ever recorded. These figures show the reliance of companies in the USA and Europe on China. The Chinese market provides both customers and suppliers.
The Chinese stock market has not been spared either. When the market opened after the end of the Lunar New Year holiday, the shares experienced a free fall. The Shanghai Composite Index (SSE Index) which includes the stocks of all companies that are part of the Shanghai Stock Exchange declined by 8%. This figure is considered the biggest fall in over four years.
The main companies that were hard hit are those that dealt with manufacturing and production of consumer goods. However, there was a silver lining since the shares of companies in the health sector grew.
Since then this market has been on a recovery thanks containment efforts and policies that stimulated it, further propping it. For instance, the central bank pumped money into the financial system. The finances were meant to ensure that the banking system is liquid. Additionally, it lowered interest rates in a bid to ease the pressure.
Further, some organizations cut their growth forecast for 2020. For instance, Mastercard, a company that deals in credit cards and financial systems, stated that its revenue for the first quarter of the year will be lower than the projection made in January by between 2% and 3%. The firm attributes this to the drop in international travel because of the virus.
It is important to note that the lockdown has instigated a lack of data on the business effects of the epidemic. This has made economic projections unquantifiable. Nonetheless, from what is available, small Chinese businesses are struggling. Due to coronavirus, they are unable to reopen because the government requires companies to comply with new public health measures.
Furthermore, they do not have the capacity to let their employees work from home. The problem is further compounded by the fact that their resources are fast depleting.
According to a survey conducted in September 2019, SMEs contribute to 60% of China’s GDP. They also employ close to 80% of the country’s working population. The taxes they pay to account for close to 50% of China’s revenue collection. Based on these figures, their importance cannot be understated or ignored. Their struggles will automatically translate to China’s economy which is bound to slow down.
Notably, coronavirus is viewed as the last straw that will break the camel’s back (the camel being the Chinese economy). Prior to the epidemic, SMEs were already grappling; clutching at straws, as it were. The Chinese economy was already on a slowdown because of factors such as a drop in the local demand, trade war with the USA, and increasing debt.
With coronavirus, they have gone weeks without being in operation meaning that the benefits that they brought are no longer being felt. The financial outlook is bleak. The situation is so dire to the extent that the Chinese government is mulling over funding the companies through bailouts.
In the forex market, the conditions are no different. News of the spread of the virus caused panic. Analysts claim that only the US dollar is safe for trading. Their analysis emanates from the news that the dollar index had gone up by about 2% since mid-January.
The dollar index refers to the ratio of the value of the US dollar to other important foreign banknotes. Their assertion is also informed by the fact that the Japanese Yen, which is traditionally considered safe, has also declined in value.
Coronavirus Shown The Importance of Chinese Markets
The coronavirus has greatly impacted the financial world. It has shown the importance of China in the global economy. Nonetheless, there is hope since scientists are tirelessly working to come up with a vaccine. The only problem is that it may be several more months until a working vaccine is approved.
Therefore, citizens should take care of their health and abide by the regulations and measures that the WHO and their respective governments have put in place to curb the spread. Just like other coronaviruses, COVID-19 may also be arrested before it causes more damage.
COVID-19 is one of the types of coronavirus. Mostly, the family of coronaviruses infects animals, but the new type has a great impact on humanity.
China’s economy is the second-largest in the world now. As China closed boundaries, it had a great negative effect on transportations and manufacturing over the world. Thus, there is a big fall in all financial markets.