Around $ 5 trillion has been wiped off share markets globally this week, with the virus spreading to every continent bar Antarctica and the number of new cases continuing to increase faster outside China.
A pandemic lasting six months could knock $ 1.1 trillion off the expected growth of global GDP, according to a report by UK research firm Oxford Economics.
Consumers will spend less, people will be unable to work, travel and tourism will drop sharply and investment will fall, said the firm, which based its analysis on past outbreaks including SARS and swine flu.
“$ 1.1 trillion would be much less than the financial crash impact, the world economy would still be growing. Our forecast is 2.3 per cent GDP growth,” says Ben May at Oxford Economics.
Calculating the economic damage so far is hampered by a lack of data, he says. Figures for industrial activity emerge slowly and past comparisons are made harder by the changing timings of Chinese New Year – the initial outbreak in Wuhan coincided with the annual holiday.
However, there is evidence from some sectors, such as travel and tourism. Thailand, which normally gets just over a quarter of its visitors from China, saw tourist numbers down 70 per cent in the first 10 days of February, compared with that period in 2019.
“Clearly there will be big impacts on tourism, which we are seeing,” says May. “You will also see weaker trade, which will lead to supply chain issues. Some businesses will be fine, others badly affected.”
Airlines expect demand to drop 4.7 per cent this year, which would lead to the first overall decline in global air travel since the 2008 crash. Around $ 29 billion is expected to be wiped off airlines’ global revenues this year, with those in Asia-Pacific hit hardest, said trade body the International Air Transport Association.
Oil analysts Rystad Energy revised down its expectations for the average price of the international crude benchmark, Brent, from $ 60 per barrel to $ 56, and warned it could fall lower. China’s carbon emissions are already believed to have temporarily fallen a quarter as a result of quarantine measures.
Car manufacturers have seen demand hit, says David Bailey at the University of Birmingham, UK, who notes that firms including Jaguar Land Rover have said they aren’t currently selling any cars in China. “We might even see global car sales decrease this year for first time in many years,” says Bailey.
Although car-makers work on a “just-in-time” production model, meaning parts arrive at a factory shortly before they are needed rather than being stored on site, those in the UK source relatively few components from Asia, less than 10 per cent.
However, they could still face disruption, as shown by Jaguar Land Rover flying parts from China to the UK in suitcases. If and when production restarts in Chinese factories that have currently downed tools, there will still be a delay to restoring supply chains because parts take six to seven weeks to be shipped to Europe.
The effect on the UK economy remains to be seen, but businesses were told this week by the health secretary Matt Hancock to issue sick pay to employees who self-isolate from the virus on National Health Service advice.
No plans have been announced for compensation for the self-employed and for gig economy workers, who may want to work despite self-isolation advice to avoid losing pay. The Department of Health wasn’t able to respond to queries on the issue.
Sickness from the outbreak could cost the UK billions, a Department of Health report from 2011 suggests. Though only illustrative, the analysis of a potential flu outbreak found a cost to GDP of £28 billion based on half of employees being absent from work in a pandemic.
Depending on how long a pandemic lasts, the economic fallout for some could be lethal, like the virus itself.
Aaron Reeves at the University of Oxford, who was part of a team that found the financial crash was linked to an extra 10,000 suicides in Europe and North America, says the recent stock market fall could result in more suicides.
“There is a real chance this leads to rises in unemployment in the next three to six months,” he says. “We would expect some mental health implications, and the hard edge of that is suicide.”
It would be surprising if a coronavirus pandemic led to as many suicides as the 2008 crash, but the number of deaths is still likely to be “non-trivial”, he says. How bad the effect is depends on where the economic damage lands: countries with stronger social welfare mitigate the knock-on impact on suicides, says Reeves.
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