Coronavirus impact on the global economy

The impact of the coronavirus on the global economy


China and now the whole world is trying to fight the spread of Covid-19. Many countries have declared a state of emergency and shut down their economies. To date, what are the main spin-offs of the epidemic, given China's determining weight in international trade?


What is the impact of the coronavirus on the global economy compared to the SARS epidemic in 2003?
The situation has changed dramatically since 2003. In the aftermath of the SARS epidemic, China accounted for barely 4% of world GDP and ranked sixth in economic terms. Today, it generates more than 16% of global GDP, making it the second largest economic power in the world, just behind the United States. China has also been the main source of global growth for decades, with a contribution of more than 39% in 2019 alone. At this point, the OECD estimates that Chinese GDP growth will fall below 5% this year . In addition, the situation has become a global health crisis, with the epidemic spreading rapidly around the world. The impact on the world economy becomes more apparent, as estimates of global growth for this year are lowered to 2.4% - from 2.9%, as originally planned for 2020.

The progression of the Covid-19 affects many industrial sectors and increases the supply problems in the world ...
Globalization has propelled China to the heart of extremely complex logistics chains. In fact, companies around the world are dependent on Chinese supplies, which is why plant closings in the provinces affected by the virus have affected so many industries.

South Korean automaker Hyundai was the first non-Chinese company to announce the end of production in factories located on its own territory due to a shortage of parts. Car manufacturers in Europe and the United States have said they will soon run out of components.

China is in fact the leading exporter of electronic components, with almost 30% of the world total. The interruption of deliveries has detrimental consequences for countries whose production depends largely on electronic components imported from China. In 2019, for example, Japan imported more than $ 45 billion in Chinese electrical and electronic components.

China is also the world's largest importer of raw materials, highlight yourself.
China accounted for 80% of the growth in global demand for oil in 2019. Naturally, the sharp contraction in Chinese industrial activity, accompanied by drastic reductions in international and national transport around the world, caused turbulence in the markets. oil and energy. As a result, the International Energy Agency (IEA) has announced that global demand for oil will drop for the first time since 2009.
The slowdown in Chinese industrial activity has also hit the copper market hard, as the country accounts for half of the world's demand for copper. The metal is used in a number of industries, including the automotive, mobile, and home appliance industries.

The decrease in transactions in these different sectors led to the postponement or outright cancellation of many contracts planned with suppliers from Latin America and Africa due to events of "force majeure", namely independent of the will of Chinese companies.

To what extent are the luxury, travel and tourism sectors today impacted by the fall in Chinese demand?
The airline industry is facing a severe blow and is expected to suffer losses that could range from $ 63 billion to $ 113 billion this year, due to the largest decline in air traffic in 11 years. Chinese tourists are the most numerous to travel in the world. They favor the Asia-Pacific countries and go mainly to Hong Kong, Macao, and Thailand. The latter country welcomed nearly 10 million Chinese tourists in 2019, or 30% of all visitors. Since the start of the epidemic, Thai authorities estimate that around 1.3 million trips have been canceled in February and March alone. But the impact in the tourism sector goes far beyond, as the epidemic spreads worldwide. Tourism Council (WTTC) estimates that 50 million jobs in the industry could be threatened, including about 30 million in Asia, seven million in Europe, five million in the Americas and the rest on other continents.

Chinese tourists have a strong enthusiasm for the luxury sector. Since the early 2000s, nationals have turned massively to high-end products, with no less than 33% market share in 2018 and forecasts reaching 46% in 2025. The sector is now confronted at its greatest challenge since 2008, since the main luxury groups such as Kerring, LVMH and Tiffany are increasingly dependent on the growth in demand from Chinese customers.

How should the situation evolve?
It really depends on the evolution of the epidemic. We can see that there are positive signals from China where the contagion is finally showing signs of slowing down. Work then begins to resume in China, and industrial activity will be revived in the country, as in companies around the world that depend on it. The delay in production should therefore be reduced, thanks to the measures adopted by the authorities.
On the other hand, if the virus continues to spread in China, eastern Asia, Europe and other parts of the world, the climate of uncertainty and disruption will increase. Travel will continue to be hindered and supply chains that are temporarily disrupted will be disrupted, resulting in factory closings in China and other countries.

Some multinationals may consider revising their sourcing strategies and seek out substitutes for the Chinese market, although experience has shown that this is not obvious.