COVID-19 WORLD VIEW
ECONOMICS OF A PANDEMIC
Sandesh Bartlett takes stock of the global economic fallout from COVID-19
In July 2003, the Beijing Municipal Council announced that the SARS virus had cost Beijing’s tourism industry a mammoth US$ 4.8 billion. At the same time, the WHO declared that the virus, which had originated in the Guangdong Province, appeared to be contained.
But in its wake, SARS had left at least 774 people dead worldwide and cost the Chinese economy approximately one percent of its GDP.
The world of 2020 has nearly two decades of history between it and that of 2003. However, at the time of writing, the coronavirus (COVID-19) has left more than 200,000 people dead with over three million infected.
With no respite in sight for medical officers and policy planners, it has become abundantly clear that COVID-19 portends a grim reality for the health of the global economy. This raises a troubling question: why does a virus with a locus established largely in China have repercussions for the world economy?
The Chinese economy of 2020 is no longer that of 2003. A behemoth of 1.4 billion consumers with a growing palate for the trappings of the upper middle class, China is vital to economic flow.
With China under lockdown until not long ago, shops and factories that produce everything from Japanese automobiles to Western electronics were forced to a halt.
In February, Chinese officials attempted to staunch the economic impact by pumping 22 billion dollars (CNY 150 billion) into the economy with President Xi Jinping looking to douse alarm by visiting the affected province of Wuhan in March.
Both manoeuvres might have been a little too late for an economy that was expected to slow long before the virus hit. At the end of February, it was reported that the millions of Chinese SMEs – which employ some 233 million and account for 68 percent of total annual operating revenue – were in jeopardy and able to sustain regular operations for two months at most.
Additionally, several global companies that count China among their three largest markets have been left exposed. In the first half of February, vehicles sales in China buckled by 92 percent, information that came pursuant of Fiat Chrysler Automobiles announcing that the virus could halt production at one of its European factories.
China’s stifled economic power also impacts tourist industries worldwide and Sri Lanka is among them. In 2018, Chinese international tourism expenditure stood at a stunning US$ 277 billion – a figure that had risen by 20 billion dollars from the previous year.
For developing nations, the ensuing recession, travel restrictions and ‘Sinophobia’ might prove fatal to several tourism establishments.
Combined economic strain and projected economic downturn may also leave Chinese foreign policy unable to sustain the same volume of development through the Belt and Road Initiative (BRI) – for better or worse. An appendage of Chinese statecraft that is run through trade and development, many have criticised BRI for effectively making vassals of states unable to pay their debts.
Therefore, with the volume of China’s economic operations threatened, its tethers to the global economy have strained. ‘Made in China’ no longer merely indicates where a family’s flat screen was made but how tethered the globe is to the Chinese economy. So this should have had alarms ringing for governments worldwide when the virus hit.
Instead, the sluggish response of numerous actors has left holes in the global economy that few stimulus packages can plug. The Chinese government, which initially suppressed whistleblower Dr. Li Wenliang who first reported the virus, might have turned the first blind eye.
But Russia and Saudi Arabia’s price war following the pursuant drop in demand for oil added to the crashes of both Black Monday and Thursday, leaving stock markets scrambling in the dark.
With the WHO refusing to label the virus a pandemic until it had a comfortable foothold in 114 countries, it’s clear that many international bodies and governments are equally culpable for a lack of coordination.
At the time of writing, a number of remedies have been recommended for the global economy. President Donald Trump has proposed tax relief while Prime Minister Narendra Modi floated an emergency SAARC fund; Italy suspended mortgage payments whereas others have called for the provision of cash and paid leave to the public to ensure that the veins of the economy are left rushing with financial flows.
With some 600 currently infected in Sri Lanka and the economy at a standstill, the government ought to consider its next steps carefully. Iran sought to flex its muscles but found an inability to resist with the virus atrophying while other countries such as Singapore have been strategic and had more success.
It is clear that the world cannot afford to be lethargic or careless in its response to future pandemics. Similar to how a virus can mutate, governments must coordinate, evolve and adapt to meet the complexities of protecting the organs of a hyper-connected economy.