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Will the coronavirus outbreak cause a global economic downturn?

The COVID-19 coronavirus outbreak, also known as Wuhan pneumonia, is at the turning point from an epidemic to a pandemic. According to the update at the Centers for Disease Control and Prevention on February 22, a total of 32 countries/regions have reported confirmed infected cases.

Besides mainland China, where the coronavirus outbreak first started, other places also show signs of failing to contain the disease. In South Korea, for example, the confirmed infected cases went up to 763 on Monday (February 24) morning. Six days ago, on February 18, the country only had 31 cases.

On Sunday, February 23, Italy reported that three people had died, and 152 others had been infected with the coronavirus; Iran also reported 43 confirmed infected cases.


Travel restrictions due to the coronavirus outbreak

Effective on February 2, all aliens who have visited mainland China, “during the 14-day period preceding their entry or attempted entry into the United States,” will be suspended to enter the United States, with some exceptions. The U.S. Department of State also issued a “Level 4: Do Not Travel” warning to its citizens who plan to visit China.

On February 22, The U.S. Department of State raised the travel alert to both Japan and Korea at “Level 2: Exercise Increased Caution due to an outbreak of COVID-19.”

Countries around the world have shut down the border with China or place a tight restriction to stop the tourists who had visited mainland China in the past 14 days from entering the border. Turkey and Pakistan also closed the borders with Iran

There are no domestic travels either in the places where lockdowns and restricted-access are in order, like in central China, Daegu in Korea, and the northern part of Italy. People are advised to stay at home and restrict any gatherings or group activities.   

Coronavirus’ immediate impact on the airlines

Airlines are canceling flights to and from China amid the coronavirus fears. From January 23, when China began imposing the travel ban until February 13, the departure and arrival flights in China dropped from 15,072 to 2,004 a day (domestic and international flights).

It is estimated that the global airline industry would lose $30 billion due to the coronavirus outbreak. Not surprisingly, Airlines operating in the Asia-Pacific regions would face the biggest hit with a $27.8 billion drop in revenue.

Comparing to what happened during the SARS outbreak in 2003, the airline industry lost $6 billion. It took nine months for international traffic to recover. Back then, however, there were a lot fewer Chinese traveling overseas than today. 

Coronavirus’ impacts on the tourism industry

In 2018, the Chinese spent $277 billion in international tourism. The United States came second but only with $144 billion. When the Chinese are not traveling or restricted to travel, the global tourism industry will suffer.

In the State of California alone, the Chinese tourists spent $4.015 billion in 2019, about 37% of the market share in the U.S. in terms of spending. There were 149 weekly nonstop flights, an equivalent of 45,000 weekly nonstop seats, flying in and out in Los Angeles, San Francisco, and San Jose.

Now, all major U.S. airlines have already canceled all China-bound flights until March or April. California is likely to lose about one-quarter income from Chinese tourists in 2020, at about $1 billion.

As far as the global tourism industry is concerned, when the Chinese do not travel during the first quarter of 2020, that means a loss of $69 billion ($277/4).

Coronavirus’ impact on the global supply chain

China has been a global factory for many years. Since 2018, the trade war between the U.S. and China began pushing more U.S. manufacturers to consider shifting their productions to other countries than mainland China. Still, many companies are now facing a supply chain dilemma when the Chinese workers are staying at home as a remedy to prevent further outbreak of the coronavirus. 

Apple, for example, relies on Foxconn in China to assemble most of its products. Due to the coronavirus outbreak, however, it is uncertain when Foxconn would reopen its factories. It is hoped Foxconn may be able to resume 50% of its production level by the end of February.

Meanwhile, Apple has closed all 42 stores in China and does not know when they will be open again. Apple’s outlook gets double-hit by both supply and demand.

According to the prediction with the Oxford Global Economic Model, if the pandemic is limited to Asia, the world GDP would fall by $0.4 trillion or 0.5% in 2020 as compared to its baseline model. If the pandemic is a global issue, the world GDP will drop by $1.1 trillion or 1.3%. As a reference, the U.S. GDP in 2019 increased by 2.3 % from 2018, with a current-dollar GDP of $21.43 trillion.

When is the end of the pandemic?

The Chinese government, along with the World Health Organization, has been consistently optimistic about the situation since its outbreak. I also wish the coronavirus has already been well contained by now. Nevertheless, I can’t help having a second thought when looking at the new confirmed infected cases in Japan, Korea, Italy, Iran, and the other parts of the world. My suggestion is to hope for the best but prepare for the worst.

Have you already noticed the negative impact of the coronavirus outbreak? What do you see the outlook of the economy? What are your suggestions for dealing with such a public health crisis?

Note: This post is also available on Multibriefs.com. The picture was downloaded from Yahoo Finance

Comments

  1. Coronavirus has been affecting a lot of people from different countries, causing a lot of companies to halt their productions, and people are canceling their plans to go overseas. My parents were scheduled to go to Europe on 17 March; however, they withdrew their tickets, accommodation, etc as the situation does not seem to alleviate. The tourism industry seems to be the ones who are suffering the most as no one is willing to leave their country and risking their health for vacation. For example, a Princess Diamond cruise got contaminated by Coronavirus, and as nobody is ready to get on a cruise, for the time being, there are massive discounts deducted from the original price. I do see that the world economy will decrease at a steady rate, and it will probably increase at a constant speed after the Coronavirus is solved. I suggest people who are feeling sick, flu, cough, etc., should be wearing a mask or do not ever cough on someone! Another thing will be washing your hands regularly!
    HRT 3020 Section 02

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  2. The Coronavirus has become such a big issue recently since it has started spreading more worldwide and different governments has initiated a lot more tighter restrictions when it comes to traveling internationally. I know many people who had to have their flights cancelled due to the Coronavirus. Even a friend of mine went to China over Winter break only to realize that he can't come back because of the travel ban which won't allow aliens back into the country. This is very problematic since they attend college in the United States, but they can't come back to school even though it has already started because he is a Chinese citizen. People are in a state of panic raiding Costco, and other stores cleaning out all of their medical supplies.

    Isaac Chang HRT 3020 Section 02

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  3. Jonathan Tierrablanca HRT 3020 Sec 01

    It has been almost two months since this blog was written and the corona outbreak has started to shutdown global economies with the travel sector being hit the hardest. I knew since the start of this virus that things will only get worse for our economy and my fears came true when social distancing measures were put into place. Since the time this article was written, Italy has seen their deaths spike to 18,849 and United States unemployment rate is up to 13%, when just a few months ago was at 3%. I believe that it will only get worse before it gets better. I am hoping though that this will only last a few short months.

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