What Are the Worse Impacts of the Corona Virus Over the World Economy?

The Corona virus has touched almost all the continents where there is human life possible. The virus has such adverse effects that it can bring the world economy to a halt. 

A pandemic that originated from the Wuhan city in China is now rapidly spreading across the state and the world. There has been turmoil situation across the world and now the epicenter of the disease has been shifted from China to Europe. The economic fallout could bring recessions in the major world's economies like China, Japan, Germany, France, etc. A study gave in its report that around $3 trillion would be the economic burden of the virus over the world's GDP. It is more than the entire GDP of the UK. With so much fuss about the trajectory of the epidemic, it is hard to define its definite impact, even governments and forecasters couldn't reach a precision.

But drawing from China's experience, evaluating the case distribution in various countries, assessing the risk it could enforce upon the global supply chains, and concreting a large-scale model of the world economy, one could trace its potential effects via industries and countries and then evaluate their significance. 

We begin our analysis from the most affected country, China, where auto sector sales have fallen 80%, public traffic has reduced by 85% from its normal level and the market is touching a record low. In other quarters, the economy has grounded to a halt. An estimate by Bloomberg suggested that there would be a depreciation of 1.2% every year, initiating from the first quarter of 2020. If the current situation continues, it could prove the estimates right.

These above estimates are not just fatal for the Chinese economy, as China is an epicenter of supply and demand for the financial markets. Chinese imports from diverse sector last year was around $2.1 trillion, and Chinese people staying home could prove to be a setback from the west to the east. The world's biggest manufacturing hub, China, has experienced the worst setback in its services, ranging from Apple's iPhone manufacturing to machinery construction. It is not just about the big guns that have been affected, even the small manufacturers are finding it hard to import materials for their businesses, hence many have stepped back a century and are working on manufacturing pre-historic items.

The corona virus has repeated China's yuan devaluation in 2015, which affected the world’s financial markets but this time with an even bigger impact, as equities plunge around the world and deliver knock-on blows to household wealth and business confidence. China could work towards controlling it, hence it can be back on track in the upcoming quarters and its further impacts on the global economy could be held. 

A survey by made-in-china.com affirmed that the production capacity could settle back to the normal in the upcoming quarters. If it comes true, economies across the globe could recover from the first quarter shocks.

An epidemic that was largely confined to China and other major economies were just bearing its knock-on effects but not their outbreaks seemed like a plausible base case. In the first week of March 2020, 6000 cases from South Korea, 4000 from Italy, and hundreds of the cases were registered in various American, European and Asian countries. Although it’s a fact that no other country is near to the Chinese numbers but one should note that majorly countries are democratic and hence it would not be possible to lock down people in a province of over 60 million as China did. But taking a less ruthless approach could likely increase the public health cost.

According to the world experts, the problem is changing shape now. As the Chinese economy is in the recovery phase, workers are going back to work, manufacturing units have opened up but they are finding themselves short of orders due to the impact of the epidemic on other economies which is advancing rapidly now.

Imagine, there is a condition, just opposite to what we have analyzed above. What if the condition gets worse? As we just discussed about the Chinese workers getting back to work but what if they don't have enough inventories? Or global supply chain obstacles increase in the future? Let's suppose the countries such as South Korea, Japan, France, Germany, India, etc. the major economies apart from China take a hard hit, IT WOULD HURT THE GLOBAL ECONOMY BY 2.3%, ALTHOUGH IT IS LOWER TO THE PRE-FORECAST ABOUT THE SITUATION, 3.1%.

Let's suppose the situation gets even worse with countries like South Korea, Italy, Japan, France, and Germany. And few countries such as the U.S., U.K., India, Brazil, and Canada, further add up to their messy condition. In this case, global growth would further go down and reach to around 1.2%. The European countries would face a recession then and the US growth would drop down to 0.5% which would even add up to their woes of the election-year unemployment.

If the situation continues, the adverse effect of COVID -19 would be drastic and the growth rate would be zero.

To capture the economic impact of a global pandemic, we assume that all countries in our model face a severe shock—equivalent to the drop in growth China is suffering in the first quarter. The US enters the euro-area and Japan in contraction—possibly altering the dynamic of the presidential election. China's Economy, in that case, would just be 3.5%, the slowest ever. The global loss would hit $2.7 trillion.

A few other forecasters are even sounding the alarm to this situation. OECD has cut down on its expectations over the global GDP growth, from 2.9% to 2.4% and even suggested that it could go to as low as 1.5%. Goldman Sachs has assumed that the first quarter would be contracted globally. Various forecasts have come up with a number for the first-quarter GDP of China that varies from 5.8% to -0.5%, underlining the high degree of uncertainty. A research paper by the World Bank in 2006 has laid out the likely cost of such severe flu, 4.8% of global GDP. A situation that could be even worse than the 2009 financial crisis.