The coronavirus has now infected more than 9,800 people across the globe, and the Chinese economy is already seeing effects. The effects on the global economy depends in part on whether or not the virus takes significant hold in other countries, but much of the economic impact depends on how individual consumers respond to the crisis.
Chinese Economic Efforts
China is expected to introduce a wide range of measures to cover the prevention and control of the virus as well as the economic recovery afterwards. Chinese citizens may return to work on Monday at the earliest, with some provinces postponing the resumption of business until at least Feb. 10.
The virus has now affected more people in its first month than the SARS epidemic of 2003 did over nine months. The alarming rate at which the virus is spreading has led the World Health Organization to designate it a global health emergency. They hope this will help mobilize financial and political support. There are now four countries outside of China with cases of human-to-human transmission of the coronavirus.
The virus is already having an effect on the Chinese economy, but it's unclear whether it will impact the full year. China has issued 27.3 billion yuan ($3.94 billion) in subsidies to assist with prevention and control of the virus, but they are expected to rollout even more economic assistance measures in the coming months.
"We expect Beijing to introduce a raft of measures to provide liquidity and credit support for the economy," Ting Lu, chief China economist at Nomura, said in an email on Thursday.
"However, we don't think these (monetary and fiscal policy) measures would turn the economy around in the near term, as the virus outbreak may further weaken domestic demand and thus render the upcoming policy easing less effective," he said.
One of the problems caused by the virus is a shortage of medical supplies. Most work in the country has stopped, but many Chinese factories are receiving government support to stay open.
"On the fiscal policy front, we believe Beijing will be bolder on fiscal deficits and increase the transfer of central govt revenues to affected local govts, especially for supporting medical services and medical instrument production-related projects in the near term," Lu said.
The Global Economy
Analysts at Goldman Sachs
"The drag on growth operates mostly through lower tourism from China and lower U.S. goods exports to China," analysts reported.
"A larger outbreak of the virus in the U.S. or the fear thereof could lead to a decline in domestic travel, commuting and shopping," they added.
President Donald Trump seems to be doing his part to prevent the potential "increased domestic risk aversion behavior" predicted by Goldman by announcing that U.S. officials "have it all under control".
"We are working very closely with China and other countries, and we think it's going to have a very good ending for us, that I can assure you," he said.
Travel is one of the sectors expected to be most affected by the virus, but the hit they take now should be made up during the "rebound" in the second quarter. Still, Chinese tourism is undoubtedly suffering.
The largest unknown right now is whether or not the virus will be contained quickly. If it continues to spread in other countries, the economic effects will be much greater. Taking steps now, like closing businesses and restricting travel, to control the spread of the virus may cause economic damage in the short term, but that risk is more than worth it considering the potential disaster of a widespread epidemic.
