How is Coronavirus Impacting the World's Economy?
Created on 29 Feb 2020
Wraps up in 4 Min
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"An apple a day keeps the doctor away". But in today's scenario, nothing could help you stay away from the deadly pandemic or its impact. Mainland China has reported a death toll of over 2800 and more than 78000 cases are said to be affected.
Traders, investors and industrial giants are also hit by the virus economically. In simple words, when China gets cold, the entire world has to sneeze.
Back in 2002, the spread of Sars wiped away the growth rate of China by nearly 2%. Factories, schools and offices remained shut, causing damage to the world economy. The Coronavirus is no better. It is far beyond worse. More than 60 million people prefer to be locked down at home.
Find out how it has impacted and how it is shaking the economy.
What Sectors are bearing the burden?
Travel, tourism and entertainment
The Chinese spend more than 3 billion dollars on travel and tourism yearly. With the prevailing situation, no one is going to travel to another country. Further, various states have placed restrictions on civilians from China to enter their country. Which means hotels, cruises and the airline industry will see a reduction in their revenue. More than 203,274 flights have been cancelled from, within and to China this February.
Manufacturing and supply chain
Any company that sells goods to China-based consumers or take supply from producers in China will be affected. Be it your gaming console or headset or Smartphone, all of them are going to feel the pressure as the factories remain shut and the production has dropped to nil.
Contrary to other petroleum and other oil products will see a decline in their price. China has been a massive consumer of petroleum. As the entire city is locked down the demand for petroleum will come down. That is why you might be noticing a small reduction in the prices this month. Though it is good news for consumers, the producers from countries, namely OPEC and USA, must have to compromise their profits a lot.
China has been a hub for production medicines that we require daily. More than 15% of pharmaceutical production is based in China. As the output in the country has come to a halt, we might experience an increase in the prices of medicines like Paracetamol and other major medicinal equipment.
How are the 'Big Giants' coping up?
People of China are restraining themselves from leaving their houses to avoid getting affected. A lot of public places such as restaurants and shopping malls are deserted. A lot of people are refraining from going to work as well. This has hit hard on big companies like Apple and Ford. Most nations, to minimize the spread of the virus have closed their ports. This hinders the movement of goods from China. A few companies that are hit by the virus are:
- Qualcomm reported a fall in profit of 10%.
- Airbnb saw 38% fewer bookings as of the month of February.
- Tesla had 3,563 cars booked for delivery by the Chinese which is less than the booking made by them as of December. The December bookings stood at 6,613.
- Apple earlier said that projected revenue would range between $63 billion to $67 billion for the third quarter. The range estimated is wider than usual.
- Microsoft saw a $62 billion reduction in its market cap after it's CEO said that the company will have a reduced revenue owing to the obstacles caused by the Coronavirus and the list goes on..
How exactly are they hit?
China has been producing spare parts, medicines and other raw materials or semi-finished goods to a lot of major tech giants like Tesla, Apple, etc. With restrictions in line, the supply chain is hurt severely. Apart from that, China also has a huge consumer base. As the retail outlets remain shut, companies like McDonald's, Starbucks are losing their profits.
Apple alone made more than 52 billions of dollars in sales during the last financial year. But now the situation is not favouring the company. More than 40 retail outlets have been shut. Earlier, the company also announced that there would be reduced production of iPhones following the situation.
More than 40% of sellers of Amazon are based in China. Also, Facebook's Oculus Quest headsets are manufactured in China. All these products will now face a severe shortage which might cause a price hike in the near future.
The signals from Wall Street and Dalal Street
The fear of traders and investors has been clearly projected through the markets. The markets saw a tremendous downfall this month. The Dow Jones Industrial Average fell below 800 points. As a whole, the US indices plummeted sharply to about 1.8%. Europe and Asia have also witnessed a similar fall.
The Indian investors had lost more than 5.5 trillion following the mega decline of the India stock market. Further, the Sensex was down by 1448.37 points, and Nifty was down by 442 points.
This is mainly because the investors are fearing the rapid spread of the Coronavirus beyond China and the predicted recession, which is holding them back. The shares of companies like Apple, Facebook and Microsoft have seen a steep fall in their prices.
However, the Chinese government, along with big companies, are taking a lot of measures to reduce the impact. The Chinese government is coming up with tax cuts and other policies to place the country on the right track. The companies are giving huge bonuses to encourage people to go back to work. However, will all these be sufficient? Or these effects are just the beginning? Is the worst yet to come? We will have to wait and see.
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