The economic effects of the COVID-19 coronavirus around the world

Coronavirus has quickly emerged as a risk to Chinese and global economic activity. In this special section we explain what customs managers and global trade professionals need to know and provide further information.



Human toll

The human effects matter most but the disease is having a marked impact on some areas of economic activity in China. The ultimate economic effect, is, like the path of the virus, unknowable.

  • As of 18 February 2020, the total number of confirmed cases was 72,530 with a further 6,242 suspected cases.

  • The novel nature of the coronavirus meant regional health experts and local government authorities were not fully aware of the potential risks to public health until it was very late.

  • The human toll of coronavirus is significant and continues to rise. The virus has so far infected over 50.000 people in China and killed over 1000.


How does Coronavirus compare with SARS / Swine flu ?

  • We do not yet know the degree to which coronavirus is contagious or deadly, and for how long the spread of the virus will continue.

  • However, the number of coronavirus infections and deaths already exceeds the final total for SARS, suggesting a significantly greater impact.

  • SARS (severe acute respiratory syndrome) in 2002–03 infected 8,000 people and about 800 died, mainly in Hong Kong and mainland China.

  • Coronavirus has a lower fatality rate but is more infectious than SARSThe number of deaths from coronavirus so far is significantly higher than the comparable period during the swine flu epidemic of 2009–10.

  • Most cases of coronavirus are in China, but many other countries have reported the spread of the virus.


The economic effects of the COVID-19 coronavirus around the world

The extent of the economic impact depends on the virulence of the disease and when it reaches a peak. But what we know already is:

Impact of the effective shutdown of Hubei province, the source of the outbreak:

  • Almost 60m people,

  • Approx. 5 % of Chinese GDP

  • 7% of Chinese car-assembly capacity

  • Disruption to Chinese manufacturing activity – Hubei is a major supply chain hub – could have knock-on effects globally.

  • China plays a far greater role in the global economy than in 2002–03.

  • Chinese economy, measured in current US dollars, is almost ten times larger than it was in 2003 when the SARS virus peaked.

  • China now drives one-third of global growth.

  • Outside China, the hospitality, tourism, retail and luxury goods sectors are heavily dependent on Chinese consumers, who are facing travel restrictions both from their own government and from a growing number of countries, including the US.


Global Supply chain disruptions

  • The world increasingly relies on Chinese consumers who are the world’s biggest buyers of cars and smartphones.

  • Disruption in domestic Chinese production is likely impact to rest of the world through complex supply chains and exports.

  • Some factories still remain closed. Among those that reopen, some are likely to operate at lower capacity because not all workers will be able to return to their employers.

  • Manufacturers that rely on Chinese inputs from the affected area may struggle to maintain production:

  • Apple’s main plant for iPhone production in Henan, run by Foxconn, was closed last week because of the virus.

  • South Korean automaker Hyundai has halted production at all its Korean plants after exhausting its stock of Chinese components.

  • Automakers in Europe and the US report that they are weeks away from doing the same.

  • The Nikkei Asian Review reported that key suppliers to Apple are expecting labour shortages due to travel restrictions.


Shipping & Logistics Impact

  • The longer the health crisis lasts, the harder it will be to move goods around the world..

  • About 80% of world goods trade by volume is carried by sea

  • China is home to seven of the world's 10 busiest container ports, according to the United Nations Conference on Trade and Development.

  • Nearby Singapore and South Korea each have a mega port too.

  • CNN reported on 20 February 2020 that shipping companies that carry goods from China to the rest of the world say they are reducing the number of seaborne vessels. Giant shipping companies such as Maersk, MSC Mediterranean Shipping, Hapag-Lloyd and CMA-CGM have said that they have reduced the number of vessels on routes connecting China and Hong Kong with India, Canada, the United States and West Africa..

  • The shutdowns of some Chinese ports mean that some ships can't get into these ports,

  • Others are stuck in dock, waiting for workers to return to ports so that construction and repairs can be completed,

  • Still more vessels are idling in "floating quarantined zones," as countries such as Australia refuse to allow ships that have called at Chinese ports to enter their own until the crew has been declared virus-free,.

  • In Singapore, authorities are requiring all vessels that have called at ports in mainland China over the past 14 days to submit a health declaration form.

  • According to port authorities, some shipping companies have taken additional measures, including canceling shore leave for crew, but port operations have not been disrupted.

Changes to routing or supply sources

  • Logistics companies are advising clients to expect delays in getting goods out of China and consider shifting some shipments from sea to air or even sourcing goods from other countries where possible.


Air cargo disrupted

  • IAG Cargo, the air cargo arm of British Airways parent IAG on 18 February 2020 canceled all services to and from mainland China for at least the remainder of the month, citing a UK government travel advisory, according to a statement on its website.

  • German logistics group DHL has reported "severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services."

  • The lockdowns could have a "major impact on supply chain operations and industrial production" in China across industries such as automotive, pharmaceutical and medical supplies, and high-tech manufacturing, it said in a report.

  • DHL has suspended deliveries in Hubei province, the epicenter of the virus, but said it doesn't foresee other changes to its operations.

  • UPS (UPS) and FedEx Express (FDX) said they continue to fly into and out of China. UPS said it has seen reduced demand for its services as a result of business closures.


Sources



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