Published on February 3, 2020 by lauraduckett

Over the past few weeks, Coronavirus has infected tens of thousands of people globally, with the WHO (World Health Organisation) declaring a global emergency on the 31st of January. This article discusses some of the economic threats the virus brings with it. 

Office and Outlet Closures

Whilst WHO officials praised the ‘extraordinary measures’ and response of the Chinese authorities, this has not stopped companies from removing their employees from the country. On Thursday, Google temporarily closed all of its offices in China, Hong Kong and Taiwan, following in the footsteps of other tech giants such as Amazon and Microsoft. The outbreak also led Starbucks to close 2000 of its 4,300 outlets in China, which accounts for 10% of the American coffee company’s global revenue.

WeWork has also temporarily shut down more than 50 offices across China; Ikea has temporarily shut mainland China stores; McDonald’s has temporarily closed stores across five Chinese cities and Disney has closed its theme parks in Shanghai and Hong Kong. US commerce secretary, Wilbur Ross has suggested, somewhat controversially, that the Coronavirus may actually accelerate the return of jobs to North America as companies bring their staff home to work remotely.  

Car Manufacturing Halt

Wuhan is China’s 7th biggest city and is a major motor manufacturing hub, which has been severely affected by the virus outbreak. The PSA group (a French car manufacturer), which owns Peugeot and Citroën; General Motors and several Japanese car manufacturers including Toyota, Honda and Nissan, have all evacuated their staff and announced plant closures, until at least the 9th February.  Plant closures are not limited to Wuhan, with Tesla, General Motors and Volkswagen just a few of the companies temporarily suspending their operations in Shanghai. 

Impact on the Financial Markets

How has the virus affected the markets? The Coronavirus has brought huge uncertainty to the financial markets, particularly with stocks in Asia as global investors became increasingly hesitant. As the virus grew by 56% from Monday – Tuesday last week, three main US indexes and London’s FTSE 100 index fell by more than 1.5% and 2.3% respectively.

Oil prices also dropped by more than 2% in the same period. Firms with significant sales in China such as the aforementioned Starbucks and luxury brands such as LVMH, L’Oreal and Hermes will be the hardest hit. 

Air Travel Hit

Analysts have predicted that China will naturally be the economy worst affected, given the loss of Wuhan completely as an important transport hub and continually facing trade war tensions in the background. Furthermore, whilst global travel has been affected, the imposed restrictions are particularly jarring for China because the timing of the outbreak has coincided with the Chinese New Year – a time when travel and spending typically increases. 

As of the 31st January, major airlines in Europe, Asia and North America have cancelled flights in and out of China. British Airways has cancelled all direct flights to and from Beijing until the end of February; KLM has opted to suspend flights to Beijing, Shanghai, Chengdu, Hangzhou and Xiamen; Delta is temporarily suspending all flights from the US to China until the end of April and American Airlines have also announced that some of their flights particularly to Shanghai and Beijing will be affected. 

A Decrease in Economic Activity

Another major global impact is the loss of economic activity as people are unable to work. The minister of economic and fiscal policy in Japan expressed his concern over the Japanese tourism industry, as well as warning that the outbreak was likely to hurt Japanese exports and corporate profits. Both China and Japan, alongside the US make-up the world’s largest economies (countries with the highest GDP). 

In 2002, a similar epidemic: SARS cut the GDP of China by over 1% and the annual growth rate of more than 2% and Hong Kong’s GDP was cut by 2.6% following a steep decline in the services sector. 

Do you think that the Chinese economy will recover quickly? (Look at the outbreak of Sars in China in 2002) Which other industries will be most affected? 

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Words: Holly Porter

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