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How the coronavirus is affecting economies

How the coronavirus is affecting economies

Kat C-W

19/02/2020

The coronavirus has been front-page news since December and has caused widespread panic. The coronavirus family is actually quite common and usually not fatal, but the form that is currently spreading around Asia and internationally is a new strain that can be fatal in some patients. That being said, people are recovering from it and it is not quite the apocalypse situation that some tabloids are making out. However, economically the virus is having an impact. In mainstream news, this is not hugely focused on, however, open the FT and you will find the many industries being affected.

So how is this virus affecting the economy? Well, firstly panicked investors are dumping stock that they feel could be worst affected by the virus. However, losses affecting the European stock market seem to be minimal at present and EU officials predict that the impact on the EU will not be significant. The concentration of economic damage seems to be in China currently.

Employees cannot travel to work and the extended Lunar Holiday means that manufacturers are not producing goods. As of last Monday, the government have asked people to return to work (although some businesses have extended the holidays) in an attempt to get the economy rebooted. As the world's largest manufacturer of consumer goods, the lack of manufacturing will have an impact on supply chains both now and further along the line. However, for the businesses that have now started producing again, strict health checks and travel history verification must be completed and health officials must allow the re-opening of the business. It was estimated in Shanghai that only 70% of the city's manufacturers were taking these steps to resume production. The manufacturing problems in China will undoubtedly affect part-based products, such as cars, elsewhere in the world.

The tourism industry is another area that is affected. When I started writing this article a week ago there was just one province affected by travel bans. Now, in just seven days we can see international travel restrictions on the entire of China. Flights have been cancelled to and from China, having a huge effect on the aviation industry. A month ago China was flying the most passengers in and out of its airports behind only the USA and the UK. It now ranks 16th (at the time of writing) on this list. 1.4 million airline seats have been cancelled. This will damage the industry short-term, however as viruses such as SARs and Ebola have demonstrated, typically the supply/demand bounces back relatively quickly. The amount of money lost short term is yet to be predicted, but as a comparison, in 2003 the SARs virus cost China’s aviation industry $10 billion. In 2003, the air traffic was approximately ten times less than what it is today. This could mean large losses for predominantly Asian airlines, some of whom are already dealing with the effects of the Hong Kong protests late last year.

Japan has also reported a knock-on effect to its tourism industry from the cancellation of tours from China to Japan. In 2019, 30% of tourists to Japan were Chinese and a huge portion of Japanese air traffic came from China. Macau’s casinos have been closed for a two-week period at a time where they would usually be very profitable during the Lunar New Year. It was predicted that when Typhoon Mangkhut hit Macau for less than 48 hours in 2018, the casinos lost $186 million. This shut down could create far more vast losses for the gambling industry here and for the tourism industry that is subsequently being affected.

Another side effect of the virus has been widespread xenophobia. Asian nationals have been targeted for wearing masks and subject to racist remarks at the University of Sheffield prompting a campaign to highlight why students might wear a mask (hint: the answers were not all illness-related).

The economic and social impact of the virus can be a great interview discussion as there are plenty of interesting angles to come at it from as it is affecting so many industries and countries. I’ve covered a few potentials here but try and go deeper into research and find a unique angle to talk about this topic.