The current Coronavirus outbreak will have a severe and negative impact on the worldwide economy in 2020, and it will last for a very long time even after the end of outbreak. What we know so far (i.e. 10 March 2020)?

Introduction

Since 31st December 2019, the Chinese city of Wuhan has reported an outbreak of pneumonia caused by the 2019 novel coronavirus (2019-nCoV). Cases have been exported to other Chinese cities such as Beijing and Shanghai, as well as internationally, threatening to trigger a global outbreak. Chinese health officials reported tens of thousands of infections cases with 2019-nCoV in China, and the virus was reportedly spreading from person-to-person in parts of that country. Most infections with 2019-nCoV are associated with travels from Wuhan, although they were reported in a growing number, on other Chinese and international cities. There are 98,704 confirmed 2019-nCoV incidents, 3,383 died, and 55,459 recovered, across 87 countries and territories on 6th March.

Estimation of spreading

On 23rd January 2020, the central government of the People's Republic of China imposed a lockdown in Wuhan and other cities in Hubei province to quarantine the centre of Coronavirus outbreak of coronavirus disease 2019 (COVID-19). This lockdown was the first known instance in the modern history of locking down a city of as many as 11 million people, and the incident was commonly referred to in the media as the "Wuhan lockdown”. The lockdown in Wuhan set a precedent for similar measures in other Chinese cities in the following weeks, and there are at least 207 cities across China that have adopted comparable quarantine policies to restrict the traffics in the city or outside connection. Overall, the lockdown may partially halt the spread of the epidemic in Hubei province.

Shen’s paper1 published on 11th February claimed that the lockdown would effectively reduce the spread of Coronavirus since the lockdown was adopted and the percentage of facial mask usage in public space has also drastically increased to almost 100% in Hubei province and other Chinese cities. However, this may be the result of people’s perception of the outbreak severity, rather than the lockdown itself. The authors assumed that the person-to-person contact rate would return to normal, but mask usage will retain, and the trend will then gradually decline. Their estimation on the cumulative number of infections and death cases in Hubei province will reach 39,362-218,560 and 1,667-7,095 at the end of the outbreak, with a fatality rate of 3.44%. 

Meanwhile, the study conducted by Abbott et al.,2 has concluded that the initial R0, which is the expected number of cases directly generated by one case in a population where all individuals are susceptible to infection. Using a SARs-like serial interval, they found that the most likely scenario produced an R0 estimate between 2-2.7, and the most probable pre-intervention SARS-like serial interval scenarios resulted in an estimated R0 of 2.8 - 3.8. Study of Wu et al., 3 also pointed out that the basic reproductive number (R0) for 2019-nCoV was 2.68 and that 75, 815 individuals have been possibly infected in Wuhan as of 25th January 2020. The epidemic doubling time was 6.4 days. Other cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, were the mainland Chinese cities that together accounted for 53% of all outbound international air travel from China and 69% of them outside Asia. If there were no reduction in transmissibility, the Wuhan epidemic would peak around April 2020, and local outbreaks across cities in mainland China would lag by 1–2 weeks.

Estimated number of cases

The spreading of virus does not only happen in the cities and countryside but transportation as well. The cruise ship Diamond Princess has been anchored at Yokohama port in Japan since 3rd February after an 80-year old male adult from Hong Kong who was on the cruise in January, developed COVID-19, the disease caused by the new Coronavirus. Forbes4 reported that there are around 20% of the passengers and crew now have the virus over the last two weeks, which is currently more than 600 people (on 20th February). This number is more than the total patients who have been diagnosed with COVID-19 in the rest of the world, all countries combined, excluding China. The transmission rate on the cruise ship the Diamond Princess is higher than everywhere of the world, even Wuhan the first outbroken place of the current epidemic, has far lower transmission efficiency. 

Impact of Coronavirus on the global economy

The current Coronavirus outbreak will have a severe and negative impact on the worldwide economy in 2020, and it will last for a very long time even after the end of outbreak. SCMP’s report5 claimed that the economic impact of Covid-19 would be far more severe than that of SARS, or any other previous epidemic. First, the Chinese economy is four times as big as it was in 2003, which means China's impact on the global economy are likely to be correspondingly larger. Second, the outbreak took place just days before the Lunar New Year holiday, when hundreds of millions of Chinese travel domestically and internationally to attend family reunions and festive events, and China’s economic shift away from manufacturing and exports to concentrate on services and consumption means it will be even more vulnerable to falling domestic demand caused by the epidemic and the government’s responses. Third, rising US-China trade frictions will magnify the economic impact of Covid-19 as the world’s two largest economies remain locked in tariff and technology wars even if they have signed an interim truce. The epidemic may well trigger an exodus of multinational enterprises, as many firms were already rethinking their presence and future development strategy in China due to the tensions with the US and rising costs. And finally, the epidemic will weigh on banks in the form of non-performing loans, adding risk to the banking system and pressure to the country’s towering debt pile, which stood at more than 300 per cent of annual GDP at the end of last year. 

The study by Estrada6 et al. revealed a similar pessimistic estimation on the impact of Coronavirus to the world economy. Estrada’s study predicted that China economy could drop its GDP in 2020 from 2019's $14.30 trillion USD (GDP real-price = 6.2%) to 2020's 10 trillion USD (GDP real-price = 4.3%) in 2020, and China can lose from its GDP real-price between 1.9% to 2%. The impact of Coronavirus in 2020 is going to have three times more negative impact on the Chinese economy than SARS in year 2003/2004 according to our results. The study also noted that by each 1% of the GDP (full-potential) growth rate of China in the present year, China can lose easily approximately -0.45 per a unit of growth rate, and there will be negative growth on food consumption (-0.39), exports (-0.35), airways and tourism (-0.75), exchange rate (-0.35), online shopping trade (-0.37), financial service (-0.55) and public service (-0.35). At the same time, the imports (+0.35) and government spending (+0.45) will increase in the following days during and after the epidemic. From the result above we can easily find that the increase in government spending will make the Chinese debt problem more significant.

Meanwhile, from the data provided by Capital Economics7 , we can find that there is harsh decrease on TEU, coal consumption and passenger traffic during the epidemic in China, and the wholesale food price has increased as well – even though the government of China has imposed lockdown policy in many cities and ration the food to its citizens who are restricted to go outside for shopping. It is obvious that the food and goods will face a shortage in the following weeks if China does not restart its economic production in the next coming weeks.  

Outside China, two other countries are worthy of getting further attention: Japan and Indonesia. As the host country of 2020 Tokyo Olympic games, Japanese government are very reluctant to adopt strict anti-epidemic spreading policy such as the management on the surgical mask production and import, or the quarantine policy for the potential patients. Japanese government has been criticized on their treatment of the passengers of cruise ship Diamond Princess, “Quarantine on ship may be increasing risk of infection and creating a barrier to accessing medical care,” said Esther Chernak, an associate clinical professor and director of the Center for Public Health Readiness and Communication at Drexel University in Philadelphia. If the Coronavirus is severe enough to affect the 2020 Olympic games, it will be a massive loss for Japanese economic growth in 2020, which will also drag down the economic prospect of other East Asian countries.8

Indicators of economic growth

Another problem is Indonesia: Nearly a month after the World Health Organization (WHO) declared the coronavirus outbreak a global health emergency, Indonesia is yet to report a single case. Jakarta, the capital city of Indonesia, approximately 98,700 passengers from Wuhan visited Indonesia between December 2018 and November 2019, making it the sixth-most popular international destination for tourists from the Chinese city. Meanwhile, Indonesian medical laboratories lack the testing kits needed to rapidly detect the Wuhan coronavirus, according to one of the country's leading molecular biologists, and the virus may already be present in the country despite government claims of no infections.9 A Coronavirus outbreak in Indonesia can be another risk for their fragile public health system – and it will worsen the economic development prospect of South East Asia, as well as East Asia.

Other countries, Iran, is also experiencing the Coronavirus epidemic. According to the Islamic Republic News Agency, there are in total 4747 cases of Coronavirus infected in the country, of which 17 have died on March 6th. However, on February 26th, when it is seven days after the first outbreak in Qom, there were 139 cases and 19 deaths, which means the death rate is 13.6%. It is important to note that the death rate at the beginning of outbreak in Wuhan, China, was 3%, and in South Korea it was around 1%. Iran’s medical condition is far worse than many Asian countries, which may lead to a substantial public health crisis in the foreseeable future without government intervention. On the other hand, Iranian Vice President Masoumeh Ebtekar, had a confirmed coronavirus infection and is quarantined at home on February 27th. Qom, the first city during Iran’s coronavirus outbreak, is considered holy in Shiʿa Islam, and it is the largest center for Shiʿa scholarship in the world, with around twenty million pilgrims visiting the city every year. The Iranian government is also currently under harsh criticizing and public backlash due to their inefficiency and refusal attitude on control the epidemic spreading, including refusing to close the pilgrimage site of Qom. President Hassan Rouhani publicly covers the conspiracy theory that Coronavirus is a Western conspiracy to shut down the economy in Iran.10 The economic sanction can also be an obstacle for Iran to get urgent needed medical equipment. The good news is that America slightly eased sanctions on Iran to allow for trade in medical supplies and food as Tehran struggles to respond to the coronavirus outbreak throughout the country.11 The new humanitarian sanctions exemption could help Iran deal with the rapid coronavirus outbreak even as Tehran continues to deny the scale of the problem, arresting and warning dozens of citizens for discussing the pandemic online, which lead some Iranian parliament members accused the government of covering up the full extent of the coronavirus outbreak in Qom.12 It is also worthy to note that the Coronavirus in Iran will quickly spread to other middle eastern countries such as Iraq or Afghanistan, which have an even worse medical condition in comparison with Iran.

In South Korea, there are 6,593 confirmed cases, 42 died, and 108 recovered on March 6th. Although the first case was found on January 20th, there was no significant outbreak until February 18th, when a confirmed patient who is also a member of Shincheonji Church.13 The patient continued to go to gatherings of church days after showing symptoms, and many of the patient's close contacts turned out to be infected, triggering a drastic escalation of the South Korean spread of confirmed cases of SARS-CoV-2 infection. Two day after, the city of Daegu became the center of epidemic outbreak in South Korea that 70% of the current patients are confirmed there, and many of them has connection with Shincheonji or other Christian churches. On February 26th, South Korea passed three new laws to combat the epidemic, which authorized the government to quarantine the patients with force, banned the export of surgical mask and prohibited public events that will cause mass gathering.14 South Korea has also tested about 140,000 since the outbreak in Daegu, and the government is capable of conducting 10,000 tests per day in just 10 minutes for each test. This quick response has allowed South Korea to detect more than 6,000 coronavirus patients, and it is proved to be efficient, which decrease the coronavirus patient fatality rate to 0.6%, lower than the expected 2-3% number.15 On March 5, the government passed the new policy  and other measures to ensure a stable supply of masks through ration system that allow each citizen to buy two masks per week.16

In Italy, the total confirmed cases are 3,858, 148 died, and 414 recovered on March 6th. Most of the confirmed cases are in Northern Italy, especially Lombardy and the city of Milan. There are 11 towns currently under lockdown since February 22nd, which affects about 50,000 citizens.17 On March 4th, the Italian government has ordered the closure of all schools and universities nationwide until March 15th, and other events such as sports-related were all stopped until April 3rd.18 However, unlike South Korea, currently, there is no government control on the sales of surgical masks or massive test for potential coronavirus patients. On March 1st, Italy decided to put €3.6bn into its economy to mitigate the impact of coronavirus outbreak, and the Italian economic premier admitted that the government would introduce tax credits for companies that reported a 25 percent drop in revenues, as well as tax cuts and extra cash for the health system.19

Conclusion

From now on we still do not have sufficient data to estimate the accurate impact of Coronavirus to the Chinese economy in the following months, and it will be necessary to wait for a longer time and observe the economic performance of China to get a general estimation on Chinese economic trend. It is essential to know that the current epidemic has been effectively restricted in Wuhan and the rest of China after three weeks of the imposition of lockdown policy, which means it will be unlikely for China to get another wave of an outbreak in the following months. If we compare China’s economic performance during the SARS outbreak in 2003, we will find that China’s GDP growth rate at that time had been recovered to its status quo after six months of the end of the outbreak. Hence, we should be confident in China’s economic performance in the foreseeable future. On the other hand, it will be essential to notice that there are several external risks of the Chinese economy, such as the trade deal with the US.

However, it will be important to note that there is still no effective vaccine and medicine for Coronavirus yet, and the vaccine will very likely be unable to come to the market before the end of the current outbreak. It is also possible that Coronavirus can become a global epidemic that survives long enough and become something like swine flu or Ebola virus, but with a lower mortality rate. This will not only affect the Chinese economy but the world economic prospect as well, which can be a reality and needs to get prepared by the world as early as possible, to prevent further loss on public health and economic growth.

 

1 Shen, Mingwang & Peng, Zhihang & Guo, Yuming & Xiao, Yanni & Zhang, Lei. (2020). Lockdown may partially halt the spread of 2019 novel coronavirus in Hubei province, China. 10.1101/2020.02.11.20022236.

2 Abbott S, Hellewell J, Munday J et al. The transmissibility of novel Coronavirus in the early stages of the 2019-20 outbreak in Wuhan: Exploring initial point-source exposure sizes and durations using scenario analysis [version 1; peer review: 1 approved]. Wellcome Open Res 2020, 5:17

3 Joseph T Wu, Kathy Leung, Gabriel M Leung, Nowcasting and forecasting the potential domestic and international spread of the 2019-nCoV outbreak originating in Wuhan, China: a modelling study, The Lancet, 2020, ISSN 0140-6736

4 Forster, V. (2020, Feb 20). What Can Scientists Learn From The Coronavirus Outbreak On The Diamond Princess Cruise Ship? Forbes. Retrieved from https://www.forbes.com/sites/victoriaforster/2020/02/20/the-diamond-princess-has-become-a-floating-viral-incubator-what-can-scientists-learn-from-the--coronavirus-stricken-cruise-ship/#47f54d795671

5 Huang, C. (2020, Feb 16). Forget Sars, the new coronavirus threatens a meltdown in China’s economy. SCMP. Retrieved from  https://www.scmp.com/week-asia/opinion/article/3050629/forget-sars-new-coronavirus-threatens-meltdown-chinas-economy

6 Ruiz Estrada, Mario & Park, Donghyun & Koutronas, Evangelos & Khan, Alam & Tahir, Muhammad. (2020). The Impact of Infectious and Contagious Diseases and Its Impact on the Economic Performance: The Case of Wuhan, China.

7 Capital Economics. (2020, Feb 21) The COVID-19 Coronavirus and its economic impact. Retrieved from https://www.capitaleconomics.com/the-economic-effects-of-the-coronavirus/

8 Swift, R. & Lies, E. (2020, Feb 19). With stricken cruise ship, Japan draws criticism over coronavirus response, Reuters. Retrieved from https://www.reuters.com/article/us-china-health-japan-response/with-stricken-cruise-ship-japan-draws-criticism-over-coronavirus-response-idUSKBN20D0HE

9 Massola, J. (2020, Jan 31). 'That's a problem': Indonesia's coronavirus vulnerability revealed, The Sydney Morning Herald. Retrieved from  https://amp.smh.com.au/world/asia/that-s-a-problem-indonesia-s-coronavirus-vulnerability-revealed-20200130-p53wc9.html?__twitter_impression=true

10 Radio Farda. (2020, Feb 26). Iran Clerics Encourage Superstition, As Public Gripped By Coronavirus Panic, Radio Farda. Retrieved from https://en.radiofarda.com/a/iran-clerics-encourage-superstition-as-public-gripped-by-coronavirus-panic/30456432.html

11 Bryant Harris. (2020, Feb 27) Intel: Trump administration eases humanitarian trade restrictions on Iran amid coronavirus fears. Al-Monitor. Retrieved from https://www.al-monitor.com/pulse/originals/2020/02/intel-trump-ease-humanitarian-trade-iran-coronavirus.html

12 Al Jazeera. (2020, Feb 25) Legislator from Iran's Qom alleges coronavirus coverup, Al Jazeera and news agencies. Retrieved from https://www.aljazeera.com/news/2020/02/legislator-iran-qom-alleges-virus-coverup-200224100832284.html

13 The Guardian. (2020, Feb 22) Coronavirus: South Korea cluster drives huge rise in cases, The Guardian. Retrieved from https://www.theguardian.com/world/2020/feb/22/coronavirus-south-korea-sees-huge-jump-cases-china-hubei-wuhan-outbreak-

14 동아사이언스. (2020, Feb 26) 코로나3법 무슨 내용 담았나, 동아사이언스. Retrieved from http://dongascience.donga.com/news.php?idx=34612

15 Aria Bendix. (2020, Mar 06) South Korea has tested 140,000 people for the coronavirus. That could explain why its death rate is just 0.6% — far lower than in China or the US, Business Insider. Retrieved from https://www.businessinsider.de/international/south-korea-coronavirus-testing-death-rate-2020-3/?r=US&IR=T

16 Park Eun-ha. (2020, Mar 06) Two Masks a Week, ID Required. Minors Must Accompany Parents, Kyunghyang Shinmun. Retrieved from http://english.khan.co.kr/khan_art_view.html?artid=202003061826547&code=710100

17 Anna Paul. (2020, Feb 25) What towns in Italy are on lockdown because of coronavirus? Metro News UK. Retrieved from https://metro.co.uk/2020/02/25/towns-italy-lockdown-coronavirus-12298246/

18 The Guardian. (2020, Mar 04) Italy orders closure of all schools and universities due to coronavirus, The Guardian. Retrieved from https://www.theguardian.com/world/2020/mar/04/italy-orders-closure-of-schools-and-universities-due-to-coronavirus

19 Davide Ghiglione (2020, Mar 01) Italy unveils €3.6bn stimulus to tackle coronavirus, Financial Times. Retrieved from https://www.ft.com/content/a6f59348-5bae-11ea-b0ab-339c2307bcd4