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Is the coronavirus outbreak bad enough to impact the global economy, trade and logistics, not to mention a range of industries?
Zawya has collated insights from experts, who all agree that there could be second-round economic effects if the outbreak lasts even longer.
The global economic slowdown owing to the ripple effects of the coronavirus could be restricted to Q1 2020 if the health crisis is brought under control right away in China. However, if it continues to spread for a few more weeks, the global economy, trade volumes and logistics firms will take a significant hit during the first half of 2020, said Bassel El Dabbagh, Regional Director for Chemical Logistics at Agility for the Middle East and Africa region.
“All air, sea and road freight from China are affected as workers in the country are choosing to remain at home; hence, all Chinese export consignments are delayed and held up at customs, ports and borders waiting for regulatory clearances in several countries,” Dabbagh said.
During the 2002-2003 SARS epidemic, Chinese economy was four percent of the global GDP, and now it’s 14 percent; as a result, the disruption due to coronavirus will be far greater and will reach wider economies around the world.
Coronavirus that originated in Wuhan has already killed more than 1,100 people and infected more than 45,000 people worldwide.
Refinitiv Oil Research believes that the worst is yet to come, with refineries in China slashing runs in the face of plunging demand for transportation and industrial fuels, as the world’s second largest economy goes into lockdown, threatening global crude price benchmarks.
China has extended the Lunar New Year holiday season to February 2 – with some provinces mandating that enterprises remain closed till February 9 – which will affect the country’s industrial activity, and in turn, its gasoil demand.
The closures will also have a broader impact on the global economy, particularly those in the manufacturing sector with suppliers based in China, Yaw Yan Chong Director, Oil Research & Forecasts at Refinitiv said.
Forecasts indicate that China’s economic growth is expected to slip to 5.6 percent this year from 6.1 percent in 2019, which will reduce global economic growth to 2.3 percent -- the slowest pace since the subprime mortgage crisis, he added.
Besides the coronavirus epidemic, the other big challenge for the logistics business is rising geopolitical tensions and trade wars.
The US-China trade war, Brexit, geopolitical tensions in the Middle East and conflict-like situation in South Asia have slowed down the movement of goods adversely affecting business and growth of logistics companies, including Agility, said El Dabbagh.
“Overall, trade volumes witnessed a decline in 2019, and the year 2020 will not be any different from the last year,” he said, adding that international trade is slowing down owing to challenging economic and political environments.
With coronavirus impacting markets and threatening to derail the world economy, Steven Bell, BMO Global Asset Management’s Chief Economist, said: “We were positive on the world economy and risk assets in general before the sudden outbreak of coronavirus. It remains a huge source of uncertainty and the economic impact on China and the rest of the world is probably being seriously underestimated."
“The stringent controls imposed by the Chinese authorities seem to be working and the growth of new cases slowing. If this continues, we expect the output in China and the rest of the world to bounce back.
“If we are correct in this view, we can return to assessing the fundamentals - and they look positive,” Bell said.
However, Switzerland-based private banking group Julius Baer sets out the view that coronavirus epidemic came as an unexpected external market shock but is not capable of derailing the global economy.
Janwillem Acket, Chief Economist, Julius Baer, said in a note: “Not only will a cyclical dent appear in China’s Q1 figures, beyond the one expected from the festive Lunar New Year season, but also in those sectors abroad that are heavily dependent on its production. As a reaction to these disruptions, the Chinese authorities, in particular the People’s Bank of China, have initiated a number of significant supportive measures. It is becoming increasingly clear now that the coronavirus epidemic will not derail the global economy.”
(Reporting by Seban Scaria with inputs from Atique Naqvi, Editing by Anoop Menon.)
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