Virus crisis infects with global economic fear

As cases of the new coronavirus, 2019-nCoV, have exceeded 5,000 in China, many fear the economic impact. Just weeks after the tenuous truce the US and China achieved, the outbreak has put the already slowing Chinese economy in jeopardy, threatening to have global repercussions.

The disease originated in the center of China and has already stretched beyond the boarders into Hong Kong, Japan, Vietnam, Macau, Nepal, Malaysia, Singapore, South Korea, Taiwan, Thailand and has reached Australia, the states, Canada and Europe.

Investors are assessing the global economic impact as some are abandoning stocks in Asia. The stock in Europe, Japan and U.S. was also down in the beginning of the week. Now Europe has stabilized and S&P 500 is even up slightly.

The virus crisis is coinciding with the Lunar New Year, a major holiday in China. Millions of Chinese people go back to their home towns to visit relatives and plenty of tourists are expected to fill hotels and restaurants. This year the tourist related businesses are expected to suffer loses.

The respiratory illness emerged from the center of China, Wuhan, a city of 11 million people and an industrial center. The first reports of the disease came on December 31. Wuhan is now under quarantine with empty streets which is intensifying the effect on the country’s economy.

The fast spreading of the novel coronavirus, brings back memories of the outbreak of severe acute respiratory syndrome (SARS) back in 2002 and 2003. SARS appears to be deadlier with nearly 800 killed but the new virus moves faster. SARS also had a significant impact on Chinese economy dropping the annual growth rate to 9.1% in the second quarter of 2003 from 11.1% in the previous one but it was quickly overcome.

However, experts say that 2019-nCoV does not appear to be as threatening as headlines make it out to be. Even if the disease turns out to be more contagious and deadly, experience with the Ebola outbreak a few years ago and SARS shows they were efficiently contained before massive effects on the global economy.

Economists say that consequences of the coronavirus will dissipate quickly and the economy will recover within months.

JP Morgan economist Bruce Kasman commented:

Bruce Kasman

The outbreak of the coronavirus could drive large swings in Mainland China and emerging Asia growth in the first half but a much smaller impact on full-year growth, if the SARS episode is any guide.

Louis Kuijs, the Hong Kong-based head of Asia economics at Oxford Economics, said:

Our baseline is that it will be a fairly big impact but relatively short-lived.

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