The coronavirus is not limited to being named a massive health crisis but an economic one as well. What corporations and executives do in the United States and beyond in response to the outbreak, will be in direct correlation to the economic damage inflicted. Their response will also impact whether a potential recession is looming.
China’s economy is more deeply entangled with the world’s economy than ever before, with trade accounting for as much as 34% of domestic GDP. The effects of the coronavirus are most concerning in Asia, Japan, Germany, India, and the United States.
In Asia, China accounts for as much as 90% of exports and up to 50% of tourism revenues. This economic entanglement in countries like Cambodia, Myanmar, Vietnam and the Philippines, leave Asia particularly vulnerable.
Japan, Germany, and India, are also particularly vulnerable. Having, prospectively, the third fourth and fifth largest world economies, the repercussions on the global market could be immense. Japan is reliant on China for manufacturing parts, and with an already fragile economy, runs the risk of going into a recession.
Germany may face near-zero growth in 2020, with falling vehicle sales that could shake their economic stability. This is especially concerning if the outbreak continues to escalate.
India is a major importer of electronic goods from China. With supply shortages being caused by the outbreak, higher prices will begin to impact the economy. It is also possible that the reduction in imports from China could cause food inflation issues for India.
So how does the U.S., the world’s largest economy, fair in all of this? One of the main concerns is the potential, albeit likely, drop in retail imports. China may also default on a $200 billion commitment it has to import U.S. agricultural goods.
The global automotive industry sourced in China has taken one of the hardest hits. Hubei province, the center of the outbreak, is one of just 5 major automotive manufacturing places in China. Hubei province accounts for almost 9% of China’s production of vehicles. It is also a central part of auto parts production. The plant closures that have occurred so far have created chaos in global automotive supply chains. This is causing concern that a global shortage of auto parts will affect production volumes and prices.
The public airline industry has also taken a massive hit, while the private jet industry is seeing growth as those who can afford it choose to use private transportation.
Only time will tell what the toll in full will be on the global economy. The sooner that the spread of the coronavirus can be contained, the better the outlook is.
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