The risk of double crisis

Monday, 2020-02-24 16:05:14
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A man wearing face mask jogs near the National Centre for the Performing Arts in Beijing, China, February 22, 2020. (Photo: Reuters)
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NDO – The number of Covid-19 cases outside China has been growing rapidly in recent days, marking a new phase of the epidemic worldwide. Accordingly, new challenges to the world economy also increase in parallel with the outbreak of the epidemic and many countries are facing the risk of double crisis both in health and economics.

According to ANZ Bank, Covid-19 seems to have entered a new phase, business activities continue to be disrupted together with stronger economic impacts compared to the original estimates. The above concern is raised in the context that more than 2,000 people died from Covid-19 in China, while the number of new infections in the Republic of Korea and Japan is growing exponentially and fears of the disease having developed in many countries in Europe and the Middle East.

Director-General of the World Health Organization showed his concern that the window of opportunity is narrowing to contain the outbreak. More than 1,000 people are sick with the pneumonialike illness, Covid-19, outside China, and some new cases have “no link” to China's Hubei province where the virus is thought to have originated in a wet market in Wuhan, the WHO director-general said.

When the “dark cloud” Covid-19 is spreading, the “health” of the global economy has also been seriously threatened. Anxiety caused negative effects on the financial market as the prospects of economic growth as well as the profitability of businesses are plummeting.

The Covid-19 epidemic weakened the global stock market over the weekend. The Dow Jones Industrial Average index on February 21 dropped 227.57 points, equivalent to 0.8%, to 28,992.41 points, the worst since February 7, while the S&P 500 index had the biggest drop on a single day since January 31. Service activity in the US reached its lowest level in more than six years, due to the impact of Covid-19. Worried that the epidemic would pose a risk the US economy and the global economy, investors have rushed to find “safe havens” of bonds and gold.

The spread of the Covid-19 epidemic has particularly caused serious consequences for the world’s second largest economy. In February, more than half of China’s major provinces and cities had to extend the blockade period to prevent outbreaks of disease.

Last year, the economic efficiency of manufacturing in these areas accounted for 80% of the GDP and 90% of China’s export value. As the outbreak of Covid-19 caused a series of factories to be closed, the supply chain has been interrupted, the Chinese economy is likely to suffer even more shock. Passenger car sales in China plummeted 92% in the first two weeks of February as many dealerships remained closed amidst the coronavirus outbreak, according to a February 19 report by the China Passenger Car Association.

Many analysts downgraded their forecast for China’s economic growth in 2020 from 5.9% to 4.9-5.4%. The pandemic has also knocked on multinational companies that were thriving in China and have cause made many businesses to struggle. Apple Inc. is a prime example. Apple earned US$44 billion in revenue in China in 2019, mainly from iPhone sales. However, the Covid-19 epidemic is damaging both the production and the sale of iPhones in Apple's major market when its factories have yet to return to work. Apple has warned that it will miss revenue targets this quarter.

However, it is worrying that the major economies in particular and the world economy in general are suffering from the “burning fire” spread from the Covid-19 epidemic. According to analysts' estimates, about 40% of Asia's supply chains depend on China.

As a result, the disruption in “the world factory” has severely affected the global supply chain and caused many factories outside China to stop operating due to the lack of raw materials or failure to export products. However, the situation is becoming more serious when not only China but also the RoK and Japan, large economies, playing an important role in the supply chains are also alarmed by Covid-19.

It can be seen that the world is facing the risk of "double crisis" both in health and economics. Therefore, governments must implement parallel measures against epidemics associated with “shock reduction” for the economic growth.

In addition to fighting against epidemics, countries need to implement solutions to support businesses affected by the epidemic, restructure the economy, as well as prepare to restore production and business when the epidemic ends. On a regional and global scale, what needs to be done now is to strengthen connectivity, information sharing and “putting aside” trade disputes to reduce barriers for economic growth.