New challenges for global economy

Tuesday, 2020-02-04 16:51:53
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The outbreak of 2019-nCoV in China is spreading to many countries around the world, becoming a new challenge for the global economy (Photo: Reuters)
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NDO – The outbreak of the acute respiratory illness caused by a new strain of corona virus (nCoV) in China is spreading to many countries around the world, becoming a new challenge for the global economy. Accordingly, China’s economic growth has slowed down and heavy losses from service, aviation, tourism sectors are predicted to hinder the world economy this year.

Having broken out before the Lunar New Year, killing hundreds of people inside and outside of China, the nCoV has become an obsession for all countries, and will cause heavy sequelae to economies across the globe. The nCoV is considered a big challenge for China,especially in the context that the world’s second largest economy has already severely slowed due to the US-China trade war throughout 2019. The pandemic arose during a time when the positive information from the first phase of the US-China trade agreement hadbeen unable to help the Chinese economy to make a comeback again. According to economists’ estimates, the epidemic caused US$144 billion in damage to the country’s tourism, service and entertainment industries during seven days of the Lunar New Year holiday. Chinese press agencies said a real estate association in Guangzhou called on home owners to exempt or reduce rent for businesses to work through this difficult time together. The China Banking and Insurance Regulatory Commission (CBIRC) has recently announced that banks would not cut loans and reduce lending rates for the retailers, restaurants and hotels, logistics and travel companies which are badly affected by the disease. Chinese economists are concerned that nCoV is becoming a “barrier” for China’s economic growth. As such, in the best scenario, even if the epidemic can be stopped in April, China’s GDP growth will still decline from 6.1% in 2019 to 5.4% this year.

For many years, China has always been the most important growth engine of the global economy, so once the momentum of this economic “locomotive” weakens, the world economy will also face many challenges. In recent days, the outbreak of nCoV has dealt a severe blow to airlines and travel companies in many countries. As of February 2, more than 30 airlines in the world announced that they would stop flights to China. With tours from China having stopped, the tourism industry of many countries in the world have been seriously affected. According to statistics, in 2018, about 163 million Chinese tourists made overseas trips, accounting for more than 30% of travel retail sales worldwide.

For major manufacturers and transnational corporations, nCoV is also disrupting their markets and supply and production chains. On February 1, Apple Inc. announced that it will close its stores and corporate offices in China until February 9. China is Apple’s third largest consumer market and home to most of its supply chain. Foxconn Technology Group of Taiwan (China) has recently announced that it will continue to keep its manufacturing plants in China closed until mid-February.

The outbreak of nCoV is also “shadowing” the prospects of the country’s stock markets and oil markets. On February 1, Chinese financial authorities said the country had implemented a series of financial support measures to control the disease. The Central Bank of China pledged to ensure liquidity when the market reopened on February 3. However, analysts said that this will not be enough to help Chinese stocks avoid a sharp decline. Meanwhile, the price of “black gold” is predicted by many experts to decline amid concerns about the economic growth of China and the world.

In 2019, the world economy experienced the worst growth in the past 10 years and, in the context of the current acute respiratory illness caused by a new strain of corona virus from China, analysts are concerned that this will quickly push the world economy into a new recession. In the above context, the optimal choice of governments and the international community is to unite and join hands to quickly reverse the effects of nCoV on a global scale while at the same time“cooling down” hot spots of conflict so as not to create additional barriers to the world economic growth.