World is becoming a global village. It has its benefits resulting in the form of spillover of technology and skill sets. There are demerits too. One such incidence is outbreak of Coronavirus. Its originated for a busy hub in China. The fear is that actual outbreak is underreported by China. The other angle is that its impact is hyped by west to undermine China’s growing economic supremacy.
The economic impact is hard to asses. Nothing with certainty can be said at this point of time. China is the second biggest economy of the world and is an integral part of global value chains (GVCs). Including the neighboring countries like Korea, Thailand, Taiwan, Vietnam, Japan, Singapore and all in the equation, world biggest manufacturing hub is under question.
China is taking it seriously. Some reports say that around 35 million people are locked down. There are restrictions in air travel and tourism hubs are closed. Stock markets fell from Asia to Europe to North America. The commodity markets are plummeting too. Oil fell to 3-month low. Energy analyst fear that oil prices are likely to remain low for months due to fast spreading epidemic.
Travel restrictions are likely to continue. China has virtually closed Wuhan – known as Chicago of China. City population is of 11 million and it’s an industrial hub. Its economic size is $224 billion (1.6% of China) and 319 million tourists visited Wuhan in 2019. The direct economic impact is slowing down China and the spillover is across the globe.
Analysts are drawing parallels to SARS outbreak. The economic loss in 2002-03 due to SARS is estimated at $400 billion in 2003. The world recovered soon in 2004. In that outbreak more than 800 people died in 17 countries and over 8,000 were infected. The recorded number is relatively small in Coronavirus at this point, but its growing.
China has become more global since SARS outbreak. Air travel increased from 56 million in 2001 to over 600 million in 2018. This is not only increasing threat of disease spread but also have higher dent on demand due to travel restrictions.
The human misery is impacting all. The economic implication could be beneficial for Pakistan. Benefit of low oil prices is of no brainer for an oil importing country. This will help in lowering the current account deficit and in creating balance of payment cushion. Low oil prices bode well for the inflation outlook. If the outbreak continues, trade between US and China may be affected more. This provides an opportunity for Pakistan to capture exporting share.