The economy is feeling the repercussions of the virus due to the efforts to prevent it from spreading. Currently, there are strict restrictions on moving out of Wuhan, a city of more than 11 million people where the outbreak began.
The lockdown has now also been extended to Hubei province, preventing business-related travel, the movement of goods and workers.
Many have been advised to avoid crowded areas and encouraged to stay at home. Due to this, restaurants, cinemas, transport providers, hotels and shops are all quickly feeling the impact of the virus.
Not only is this a big loss, but the timing of the outbreak is particularly severe. At the time of the lunar New Year break, these industries have been particularly exposed to commercial losses.
In an attempt to reduce the rate of contagion, the virus is passed on the New Year holiday was extended for a few days by Chinese authorities, with provincial authorities imposing even longer extensions. This has resulted in an even longer delay for people returning to work, impacting business.
These types of delays, especially in production and selling goods has the potential to cause cash-flow problems, particularly in smaller operations. Many companies will still have to continue to pay bills and pay employees’ salaries.
Another factor to consider is that for manufacturers selling abroad may face hesitation or issues with buyers becoming reluctant to buy from China due to the virus.
Herbert Wun, owner of Wing Sang Electrical, which makes products such as hair-straighteners and blow-dryers in Guangdong province, comments:
Many companies would not have much slack to take this kind of impact, coming, as it did, on top of the US-China trade war.
The epidemic will add to the pressure on customers trying to shift their supply chain away from China.
However, the impact is not only on China. International businesses have closed all operations in China, including Ikea and Starbucks. Also affected are oversea airlines who have stopped flights to China.
Beyond these initial repercussions, there is a growing worry about the integrated international supply chains that may also be affected.
The Chinese market falls amidst coronavirus outbreak, with stocks in China falling 8% on the first day of trading after the holiday. Crude oil has hit its lowest level in more than a year and copper is down by 13%.
The majority of the suppliers of these commodities are emerging and developing economies.
As it stands it is too early to attempt to calculate the economic effects and much will depend upon how the Chinese contain the virus. However, some have forecasters have drafted potential figures.
Oxford Economics has predicted the Chinese economy will grow less than 4% in the first quarter of 2020 from a year earlier.
For the full year, the forecast is an average growth of 5.6%. For both figures, the previous, pre-virus forecast was 6%.
But Oxford Economics says this is all based on an assumption the “worst-case scenario” will be avoided. Therefore there is a risk of the economic damage turning out to be more severe.
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