The Global Economic Cost of the Coronavirus is on the Rise

• (Photo : The Global Economic Cost of the Coronavirus is on the Rise)

The "shortcomings and deficiencies" admitted by the Chinese government that led to the break-out of the Coronavirus could have devastating consequences, not just on the Chinese economy but the global economy. That's the view of Bloomberg, which predicts the COVID-19 pandemic could hit the world's coffers by as much as $2.7 trillion. The virus, which has now led to the deaths of more than 4,000 people and has infected almost half-a-million people worldwide, is likely to have astronomic economic consequences, as well as a grave human cost.

In the city of Wuhan, a place with a population of 11 million, where the first Coronavirus outbreak is thought to have begun, vast swathes of the city have been on lockdown for two months. Employees and goods have been prevented from travel across Wuhan and other areas of the Hubei province, which is already having a knock-on effect on the city's vital tourism sector. Restaurants, bars, and hotels have all been forced to close their doors and obey strict instructions from the Chinese government, feeling the economic pinch as a result. It's certainly called into question whether the Chinese economy will still double in size by 2030, as formerly predicted by Bloomberg.

The Coronavirus outbreak could not have come at a worse time for the Chinese economy

The timing of the Coronavirus outbreak could not have been worse for the Chinese economy, given that the nation was celebrating its lunar New Year at the time. The quarantine and lockdown of various parts of the Hubei province has left many industries exposed to seismic year-on-year losses. There has already resulted been a knock-on effect for Chinese exporters, with overseas consumers becoming less likely to want to buy goods manufactured in the Far East for fear of contamination.

It's an issue that's not reserved exclusively for Chinese corporations either. Multi-national brands like Ikea and Starbucks have opted to cease operations in China until the picture is clearer on the Coronavirus. Even closer to home in South Korea, car manufacturer Hyundai has taken the costly decision to pause production due to the wave of parts it imports from China.

Subsequently, the foreign exchange markets have gone into something of a frenzy, as it seeks to make sense of the potential impact on local and global economies. Many prospective traders have taken to reviewing materials available online at forex trading academy resource pages, which can help people to better understand the fundamentals that influence the markets, as well as the technical aspects. In Britain, for instance, the pound's value has fallen as low as US$1.15 in recent days, forcing the Bank of England to slash interest rates to record-low levels of 0.1%. Meanwhile, the Dow Jones, an index of the leading corporations in the US, has shed almost a quarter of its value in the last three months. This is due largely to the rapid spread of COVID-19 throughout the US, with New York City seemingly hit hardest to date.

In China, hundreds of billions of dollars have been fed into the nation's financial markets in recent weeks by the People's Bank of China, in a bid to guarantee liquidity and breath confidence into investors.

Could Coronavirus be a bigger threat to the global economy than the 2008 recession?

Image: Pixabay

Despite the attempts to calm tensions, there are some market analysts that fear many are downplaying the potential impact of the Coronavirus on the global economy. The World Trade Organization (WTO) claims the likely global recession caused by the COVID-19 pandemic will be considerably worse than the one experienced in 2008. The WTO's director-general Roberto Azevedo warned of "recent projections" which anticipate an "economic downturn and job losses that are worse than the global financial crisis a dozen years ago".

The eyes of the world will be keeping a keen eye on China in the next week or two, as the nation attempts to lift some of its most stringent restrictions on citizens. If the factories and offices can return to a semblance of normality in the coming weeks, it may be enough to keep the cogs of the global economy turning while the western world rides out the storm of its COVID-19 peak. China plays an influential role in driving growth for other nations worldwide through its economic and trade relationships. According to the International Monetary Fund (IMF), China accounted for almost two-fifths (39%) of economic growth around the world last year.

In the UK, the economy is forecast to contract by 2.6% in 2020, based on the most recent quarterly economic outlook from KPMG. However, should the COVID-19 pandemic breach the benchmarks set by the country's National Health Service (NHS) for intensive care support, it could pose an even bigger public health crisis, leading to contraction of up to 5.4% this year - worse than the 2008 crash. In both scenarios modelled by KPMG, it will take the UK until the second quarter of 2021 to return to growth.

It's a similarly gloomy economic picture for the United States. Jerome Powell, head of America's central bank, has admitted America "may well be in recession" following the announcement that a record 3.28 million citizens have filed for unemployment benefits in the last week. To put that figure into context, even after the 2008 recession there was less than 750,000 claims for unemployment benefits. That doesn't mean that 3.28 million people are unemployed. Gig economy workers and independent contractors are ineligible for these benefits, so the labour market is certain to be in even bigger disarray than on the surface of these figures.

It seems heartbreakingly ironic that President Trump attempted to call a trade war truce with the Chinese just weeks before the American economy would plummet amid the coronavirus pandemic, with the S&P 500 experiencing its quickest slide in that scale in history.