The coronavirus is seriously affecting world economy

Forex Distribution

Ever since 2003, when the SARS virus emerged in China, killing hundreds of people and starting a huge wave of panic, the Asian country turned into an indispensable part of global business.

As a “consequence” of globalization, several companies built supply chains in China, thus economies became much more interconnected. And this leads to one simple conclusion: if the coronavirus outbreak will continue, it could affect world economy. A lot!

Following the Lunar New Year, a lot of car plants have been ordered to remain closed. This means that automotive giants like Volkswagen, Toyota, General Motors, Honda, Renault, Hyundai or General Motors are unable to resume their operations in China.

A report from S&P Global Ratings reveals that the current situation will basically force car manufacturers in China to slash their production by 15% in the first quarter of 2020.

Automotive companies aren’t the only ones affected

Luxury good makes, which heavily rely on Chinese clients, as they are well known for being big spenders, are also “suffering”.

Burberry, for example, has closed so far 24 of its 64 stores in mainland China, as the CEO warned the entire company that the coronavirus is causing a “material negative effect on luxury demand.”

Global supply chains are going through the same situation.

Qualcomm, one of the main smartphone chips makers, is convinced that the outbreak can significantly affect the demand for smartphones. The same goes for Hyundai, one of the companies forced to close some of its plants in South Korea, due to auto parts shortage, while Fiat Chrysler is making plans to avoid the same situation in Europe.

However, not everything is lost!

According to economists, the current level of disruption remains manageable. To be more specific, if the number of new cases begins to decrease and China will reopen some of the factories, we will observe a fleeting hit to the Chinese economy in Q1 2020, but a relatively big dent in global growth.

Obviously, nobody wants to think at the opposite scenario, in which the virus will keep spreading and the economic damage will increase as well.

“They first paralyze the region of the virus outbreak,” said Mohamed El-Erian, chief economic adviser to Allianz, talking about the potential cascading economic effects.

“Then they gradually spread domestically, undermining internal trade, consumption, production and the movement of people. If the virus is still not contained, the process spreads further, including regionally and internationally by disrupting trade, supply chains, and travel.”