The spread of the coronavirus has yet to show signs of stopping, and the global economy is starting to feel the strain. The likelihood of widespread economic fallout increases every day that China stays in lockdown. The global economy is still recovering from the effects of the 2008 financial crisis, meaning many international finance organizations are already doing all they can to boost the economy.
The problems aren't caused by the virus itself, but rather the way the outbreak affects our behaviors. People are more likely to stay home rather than risk getting sick by traveling, working, or shopping. Major cities in China are still under lockdown limiting citizen movement.
Big-name companies already facing issues include Apple (NASDAQ: AAPL), Ikea, Disney (NYSE: DIS), McDonald's (NYSE: MCD), and Burberry (OTC: BURBY), to name a few. Burberry has already closed 24 of its 64 stores on mainland China. Luxury brands have been some of the hardest hit by the stall in Chinese spending and the lack of tourist revenue.
A slew of car companies are being hit as well: plants at Volkswagen (OTC: VWAGY), Toyota (NYSE: TM), Daimler (OTC: DMLRY), General Motors (NYSE: GM), Renault (OTC: RNLSY), Honda (NYSE: HMC), and Hyundai (OTC: HYMTF) have all been closed in China since the outbreak began. These producers are also facing supply shortages in South Korea and parts of Europe.
But cars aren't the only everyday necessity that could be threatened. Smartphone chip manufacturers may soon be facing production problems, as well. The world's biggest producer of these sorts of chips, Qualcomm, has warned that there is "significant" uncertainty surrounding their supply chain and the demand for their product.
This may all sound very foreboding, but most economists say that the current level of economic disruption can still be managed. They predict China will be able to bounce back from the virus in the second quarter of 2020.
However, if the number of cases increases significantly or spreads through countries outside China, we could see an international disruption of trade, supply chains, and travel. The halt of production in China alone is already disrupting supply chains, and those shortages will have more punishing effects if the lockdown continues much longer. There is potential for the damages to increase exponentially the more the virus spreads.
"A severe pandemic would resemble a global war in its sudden, profound, and widespread impact," the World Bank wrote in a report on pandemics from 2013. The coronavirus has not been categorized as a pandemic by the World Health Organization, but it has the potential to become one.
China has reacted aggressively to counter the economic effects of the virus. The People's Bank of China has cut interest rates and injected huge amounts of cash into the market. The government is also planning to introduce tax breaks and subsidies to help consumers. China has also announced they will cut additional tariffs on $75 billion worth of American goods in half. This was done in response to efforts by the U.S. to bring the trade war with China to an end, but it's expected to have other positive effects.
"The announcement may help boost market sentiment, especially at a time when China is battling with the economic impact of the coronavirus outbreak," said Tommy Wu, an economist with Oxford Economics.
Still, many analysts predict that China will need to take even more steps to head off the coming economic disruption. Unfortunately, China is in a much more vulnerable position now than they were during the SARS outbreak of 2003.
"It has much higher debt, trade tensions with a major trading partner and its growth has been steadily slowing down for a number of years, which gives a weak starting point to face such a crisis," Raphie Hayat, a senior economist at Dutch bank ING told CNN.
China isn't the only nation in a vulnerable spot. In general, the world is still fighting anemic growth caused by the 2008 crash. Many countries already cut interest rates to aid that recovery, but now there's nowhere left to go. Global debt is now more than three times the size of the global economy, according to the Institute of Finance. This is the highest global ratio ever recorded, but the U.S. and Europe are even worse off with their debt amounting to nearly four times their GDP.
"It's quite clear that multinational institutions are under more pressure, and have less teeth on day to day issues than 10 years ago," group chief economist at Capital Economics Neil Shearing said. "But the optimist in me would like to think that in the face of a global pandemic, global institutions are still in a position to respond."
Meanwhile, China's leader Xi Jinping is coming under fire for the government's reaction to the virus. The government has struggled to contain the virus and has resorted to widespread censorship online to cut down on negative public sentiment yet again.
The death of Dr. Li Wenliang, a doctor in Wuhan who tried to warn the medical community about the dangerous new virus, has brought public outrage to the surface. The announcement of his death led to a flood of social media posts calling for free speech in China. Unsurprisingly, many of those posts were taken down by the government, as well.
Xi is facing the majority of the backlash from the failure to contain the virus because he maintains such tight control over the Chinese government.
"Politically, I think he is discovering that having total dictatorial power has a downside, which is that when things go wrong or have a high risk of going wrong, then you also have to bear all the responsibility," said Victor Shih, associate professor studying Chinese banking and politics at UC San Diego.
Xi's propaganda apparatus has been working overtime to portray the virus as the "people's war" and Xi as the people's hero. As that war has raged on, Xi has allowed other officials to take the spotlight, possibly to distance himself from the crisis. Earlier on, Xi told the WHO he "personally directed" the government's response to the outbreak. The state media later walked back that statement saying the government was "collectively directing" the response. Despite these claims, experts believe Xi is "remaining firmly in charge"