The dawn of the new decade has been accompanied with the spread of a deadly new virus, an unprecedented coronavirus originating from the Wuhan area of China. What began as a few cases of respiratory illness within Wuhan has now led to 25 deaths across the globe. In addition to the health effects, the impact of this virus extends to the healthcare industry and affects a broader scope of the global economy.
Financial markets around the world have been disrupted by this outbreak, Wuhan being a prominent car manufacturing city and center for economic transport. With the Chinese economy already experiencing fragile conditions, a result of the US-China trade war this outbreak holds the potential to entirely disrupt the international supply chain, specifically within tourism, retail and automotive industries. Furthermore, with the Wuhan virus appearing on the eve of Chinese Lunar New Year, arguably the largest mass annual human migration it holds a direct impact into the Chinese economy. With over 400 million people travelling through China at this time, the event has become a significant opportunity for European luxury brands, with China representing 35% of global income in this sector. However, considering the governmental lockdown of four major cities and almost 20 million people, this calls into question the economic stability that remains.
In an anecdotal sense, the SARS outbreak held similar outcomes, yet in larger proportions as the country’s economy at the time was much smaller yet exponentially growing. The respiratory syndrome virus was responsible for 774 deaths worldwide, with the economic implications becoming long-lasting. In a study conducted by economists Jong-Wha Lee of Korea University and Warwick McKibbin of Australian National University concluded that the “fallout from the disease would continue to dampen activity and marginally depress investment in China and Hong Kong for the next decade”. However, the key component acting as the deciding factor in the impact on global markets depends on how severe and rapidly-growing the disease becomes. The disease has not yet reached the scope of the SARS outbreak, yet the increased interconnectedness of today’s global economy implies that any possibly volatility could have greater impacts, both economically and socially.
This uncertainty is what is perhaps most frightening to investors and corporations. In that sense, it is vital that the Chinese government is entirely forthcoming and transparent with the health data, in order for the potential economic impact to be minimized. Without that information, the real risk might be worse than what has been led on and an act of ignorance can have economic effects of mass proportions.