The past month the Corona virus has been in the news a lot. Ever since the beginning of the year when the virus was identified, it has spread rapidly from Wuhan to the rest of the world. As of writing this, almost 38,000 people are confirmed to have contracted the virus. The death rate appears to be about 2%, which does not seem like a lot but can be if you consider how quickly the virus appears to be spreading. However, this article does not mean to cause panic and to scare to of the virus itself. Instead of focusing on that, let’s look at it from an economic angle, and see what it’s effects can be.
Due to the virus and the fear of it spreading, there are many precautions that are being taken in order to keep people from being infected. One of those precautions may be that factories in China are not producing goods, as the national holiday has been prolonged by more than a week. This can cause trouble for the firms that are producing in China, but also for firms abroad. One example of this is that Fiat Chrysler Automobiles may have to close a factory in Europe, as the factory is missing parts. These parts would usually be produced in China and then sent to a factory in Europe to use for production. As the factories in China will be closed for longer, this may cause a shortage of the parts for European factories. This shows one way that the virus can influence production in other parts of the world.
Another effect the virus can have is a negative effect on sales. Not only could there be problems concerning the production of goods and their transport, but the consumption itself could also diminish. Some people may be scared or products produced in China, and therefore choose not to buy it. Something else you might not immediately consider are the effects this may have on tourism. It may be a stereotype, but there are many tourists from Asia that visit other parts of the world, and spend money in the country they go to on holiday. Now that many nations and airlines have declared to pause their flights to China, this will mean that a lot of potential revenue is now missed out on as there will be less tourists.
Meanwhile, the Central Bank of China has announced that they are ready to take action in order to soften the blow that the virus is going to have on the economy. The bank announced that they will keep the economy from stagnating if the virus were to be under control. The bank would take action in the form of monetary policy, which will probably mean to influence the money supply. This can help on the short term, but in the long term this may not be beneficial, as such policies can cause inflation.
The coronavirus can cause the world economy quite some trouble if it were to keep spreading like this. Already firms like Amazon are preparing themselves as the products they are selling may soon run out of stock. Nonetheless, while the virus itself remains dangerous, one thing to keep reminding yourself of is that the virus is situated in China. Personally I would not claim China is the most trustworthy country when it comes to facts, so maybe some things the country claims should be taken with a grain of salt.
By: Merijn van der Leeuw