The economy of the sick: Coronavirus and its economic toll
The year 2020 has been slated as a challenging year for China in terms of economic growth. But January hasn’t been kind to the world so far. Now, the Asian country is facing a deadly challenge to fight a virus that spreads anxiety faster than it spreads infection.
As of press time, almost 1,000 people are dead because of the virus, and mainland China has recorded circa 40,000 cases. The virus is still spreading around the world.
Wuhan: Ground Zero
The epicenter of the pandemic is in the capital city of the Hubei province, Wuhan.
Wuhan, even before it hit the headlines, has been a top name within the Chinese economy. According to the Ministry of Commerce, it is the most significant land, air, and water transport hub in inland China.
It also sports significant rail hubs that connect the city to other major cities in China, including Beijing and Shanghai.
Wuhan has 89 universities, with a whopping number of 1.2 million students. The total population, according to experts, was a factor in the swift spread of the virus.
Economically speaking, Wuhan has been growing fast. In 2018, its economy grew 8%, and in 2019, it rose 7.8%. According to some estimates, that’s around 1.6% of the national GDP.
Also, the city benefits from substantial government investment. As the economy grows, investments in biomedicine, chipmaking, optoelectronics, and semiconductors also grows.
Against this backdrop, it’s easy to imagine how much of a hit the economy is suffering from the Wuhan infection.
No Lunar New Year
As we’ve mentioned, the Chinese economy is facing a tough year ahead. It was counting on consumer spending to prop up the sluggish economy.
At the turn of a new decade, however, the country is seeing people staying at home. Of course, a lot of people are too anxious to eat out, go shopping, watch movies, and travel.
The Lunar New Year, which is the biggest annual Chinese holiday, is practically canceled.
Authorities have required theaters and other venues to close in fear of further infection spread. The city of Wuhan is in lockdown.
Entertainment hubs also closed, like Disneyland in Hong Kong, in fear of further infection. In Beijing and Shanghai, schools will remain closed until at least February 17. Prices are also rising, while Lunar New Year gift-giving and huge meals are nowhere.
Also, virtually every province in China has an infected case. Such a situation can only spell disaster for the economy.
The National Economy
However, even before the virus hit, the Chinese economy has already been slowing. In 2019, the government grew only 6.1%, which is the slowest in three decades.
According to analysts, if the lockdown and concurrent pandemic continue until May, China may not hit the 6% growth figure.
This figure is psychologically significant because it means that China doubled the size of its economy since 2010.
According to one estimate, across China, if consumer spending on things like transport and entertainment decreased by 10%, the overall GDP would lose 1.2%.
Lessons from SARS
But this isn’t the first catastrophic epidemic that China has suffered in the past two decades. In 2003, China also became the epicenter of another strain of the coronavirus.
The Severe Acute Respiratory Syndrome happened in late 2002 to early 2003. It similarly pummelled the consumer sector, infectim
At its peak, the Asian country’s growth slowed to 9.1% in the second quarter of 2003. That’s a lot slower than the 11% growth in the first quarter of the same year.
Seeing that the Chinese economy now rolls more heavily on consumer sectors, an epidemic of the same magnitude as the SARS outbreak could be worse for the economy.
Tourism accounted for 2% of China’s GDP in 2003. Today, it accounts for about 5%.
But there’s a silver lining, according to exports.
Back then, misinformation was rampant as the government was slow to release official information. Rumors and lousy info spread faster than the virus.
But then again, after the SARS fiasco stopped, the economy quickly rebounded, climbing 10% in the third quarter of 2003.
A Repeat of the 2008 Financial Crisis?
According to Gus Faucher, an economist, a recession is “inevitable,” but it’s likely to be “brief and much less severe than the Great Recession.” According to Faucher, the 2008 financial crunch and the recession came after years of deeply rooted vulnerabilities in the economy. This market downturn the world is witnessing, meanwhile, has been triggered only by quite recent events, including the COVID-19 pandemic and central banks’ failures to prop up significant economies. However, it’s also worth mentioning that the US-China trade war, OPEC+ curbs, US-Iran tensions, and the Brexit saga have been dampening market sentiment for years.
In fact the great recession back in 2008 started after an overheated housing market started collapsing in on itself. Banks and lenders even approved mortgages for unqualified entities and individuals. House prices went through the roof and rose to stellar levels. Then, the banks turned the mortgages into securities and sold them to other financial institutions.
After the destabilization of the economy in 2008, the stock market began to collapse. The largest companies on the stock market dropped by billions of dollars, with the oil stocks facing the most severe losses.
We are about to face yet another crisis in this century, but after the first crisis, we already know enough to be able to handle this upcoming one. What matters most is that you don’t get out of the market while it’s weak. The weaker it is, the easier it is to dominate. Once you dominate the market, the sooner you will begin making huge amounts of profit.