Japan is already reporting hundreds of cases meaning four of the world’s 12 economies, roughly 27% of global GDP is facing the effects of the virus. Germany is now trying to contain virus numbers which if not contained would lead to a 5th economy struggling.
The stock markets which initially showed little signs of change at the beginning of the outbreak is now reflecting the growing concern and spread of the virus as it begins to hit the global economy.
The rapid increase in cases in Italy and South Korean, the world’s eight and twelfth largest economies have created a sharp reaction from investors. South Korea’s benchmark share index closed down nearly 3.9% and in Italy, the index closed down more than 5%.
The virus has reduced demands for goods and services paired with factory closures in China. Due to this, it is already predicted that Chinses growth in the first quarter will be hit with Chinese markets falling. However, since the spread of the virus outside of China it is hitting economies that have a slower growth than China placing them at high risk, economies such as Germany, Italy, and Japan are already at the risk of recession.
Chief fixed-income strategist at Raymond James, Kevin Giddis commented:
When the virus was limited to China and other nearby countries, it was viewed as an economic issue for Asia, adding, the spread of the virus into Italy now makes this a European issue and possibly a global issue that could upset the supply chain for months or years to come.
The majority of cases in Italy are located in the northern region of Lombardy. Officials are yet to locate the first carrier of the virus in Italy, currently, restrictions are in place to prevent the spread of coronavirus in the country that includes roughly 100,000 people.
Germany, the biggest economy in Europe was grounded to a halt right before the outbreak due to its factory connection with China. Economists at Berenberg bank now expect the economy to contract in the first quarter of 2020. Official data published Tuesday confirmed GDP did not grow in the final three months of 2019.
Companies such as Apple warn that closing of operations and branches due to the virus will prevent the company from meeting sales targets. This is one of many international companies that are feeling the strain.
The International Ait Transport Association reported that the COVID-19 virus could cost global carriers around $30 billion in lost revenue. Global demand would drop by 4.7%, the first decline since the financial crisis. This estimation is based on the disruption caused by SARS back in 2003, the IATA warned:
We don’t yet know exactly how the [current] outbreak will develop and whether it will follow the same profile as SARS or not.
Currently, banks have used up many precautions that are deployed to prevent economic downturns. Diane Swonk, the chief economist at Grant Thornton commented:
It may not be called a health pandemic yet but it is an economic pandemic.
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