ECONOMIC IMPACT OF COVID-19: ANALYSIS
Everything you need to know about the coronavirus
- As of 18 February 2020, the total number of confirmed cases was 72,530 with a further 6,242 suspected cases.
- The novel nature of the coronavirus meant regional health experts and local government authorities were not fully aware of the potential risks to public health until it was very late.
- Estimates suggest the impact on annual global GDP could reach -0.1%. In Asia, the growth impact will be larger, reflecting its closer trade integration with China and heavy reliance on Chinese tourism.
At the beginning of 2020, the novel coronavirus forced the Chinese government to issue the largest quarantine order in human history, affecting an estimated 45 million people.
Experts from the World Economic Forum’s Global Future Council have been observing the situation from different industries and perspectives. Here are their insights on its impact:
Q. What is the current situation in Wuhan, Hubei province and the rest of China?
As of 18 February 2020, the total number of confirmed cases was 74,578 with a further 4,922 suspected cases, according to China’s National Health Commission. Chinese authorities have provided daily updates on the numbers.
On 12 February, the number of new cases spiked in Hubei province with an additional 242 deaths and 14,840 newly confirmed cases owing to the fact that the formal definition of confirmed cases has been extended to also include “clinically diagnosed” cases – 13,332 of the new cases fell under that classification.
Limited knowledge of the virus means medical professionals and policymakers have to adjust the test, treatment measures and diagnosis criteria on a regular basis. Consequently, obtaining an estimate of the total number of people infected is difficult at the current stage. The World Health Organization has said it is “way too early” to predict its end.
The lack of testing kits is another factor, coupled with concerns regarding accuracy in the testing process. Health experts expect that for patients with the disease only 30-50% would test positive in a nucleic acid test which has been the crucial test used to confirm new cases.
The situation has improved since the first week of February with increased production of testing kits, the loosening of confirmation criteria and the local government’s decision to treat and finally quarantine all suspected cases. The new confirmed cases outside Hubei Province have declined 14 days in a row.
Q. There are reports of service being denied at hospitals. Are health professionals in Wuhan capable of handling the situation?
The sheer number of people with potential infections is so huge it could overwhelm any existing medical system, which is why the government had to mobilize additional resources. According to one recent TV interview, more than 15,000 medical professionals from outside Wuhan have now arrived in the city.
The strain on medical resources in Wuhan, as well as in nearby city Huanggang, is exacerbated by the decision to “lockdown” Wuhan (and its 13 million residents). Tens of thousands of patients rushed to city hospitals, which immediately felt the shortage of personnel, protective gear, beds and testing kits. Two days later, the local government banned intra-city transportation to force patients to local community clinics.
Patients have been turned away owing to these shortages. More than 10 days after the lock-down, the government promised to admit and treat all patients, both confirmed and suspected.
Before 16 January, all testing samples needed to be sent to the Chinese Center For Disease Control And Prevention (CDC) in Beijing with results returned in 3-5 days. On 26 January, Wuhan ordered 13 local institutions and hospitals to conduct up to 2,000 tests a day and the result was an immediate jump in confirmed numbers but, in effect, also set the cap.
Now, up to 30 Chinese manufacturers are working round the clock to produce testing kits. Yet, on 3 February, medical experts admitted that not everyone in Wuhan who needs a test could get one.
Q: How did the disease go unnoticed for about a month?
Local doctors were the first ones to identify the problem but faced a gag order from hospital authorities. Eight doctors who shared information online were warned by the local police. They were later vindicated by the high court and applauded by the general public as whistleblowers. One of them, Li Wenliang, died of the disease on 7 February.
The local government and CDC are in a blame game over who is responsible for the slow reaction. The Mayor of Wuhan has said he didn’t have the right to call a public health emergency. Elsewhere, a CDC expert described the slow reaction in a state-run newspaper as mainly a result of local government’s “lack of scientific recognition”, as well as other economic and political factors “which could slow their decision-making, such as maintaining social stability, and the Lunar New Year holiday which fell at the end of January.”
One should not forget that coronavirus is a novel virus. Both the health expert and local government authority were not fully aware of the potential risks to public health until it was very late. The Communist Party secretaries of Wuhan and Hubei Province were removed from office on 13 February and provincial health officials were sacked several days earlier.
Q: What will impact will there be on economic activity inside and outside of China?
This will depend on both the rate of transmission and recovery for the virus and government preventive measures. Assuming the virus peaks in mid-February and production begins to normalize in March, the impact on annual GDP is likely to range from -0.2% to -0.5% based on analyst reports. The IMF suggests that the most likely scenario is a V-shaped impact with a sharp decline in economic activities followed by rapid recovery, while the annual impact is expected to be contained.
If the epidemic proves to be more persistent and more preventive measures are taken, including a sustained shut down of production and inter-city transportation, the economic impact could be much larger perhaps reaching as much as -1% based on investment bank reports.
Despite the negative short-term impact, the long-term economic impact of the epidemic may be limited and China’s growth is expected to remain resilient.
Q: What major challenges are business leaders facing?
The immediate challenges mainly come from a shrinking of demand. The situation is more severe in the service industry as the quarantine policy limits the movement of employees, reducing the supply of staff for express delivery, restaurants and domestic services, leading to higher labour costs.
Affected by the reduced demand, manufacturing woes may move upstream. For example, the epidemic may reduce domestic demand for clothing affecting the garment industry with repercussions in the textile industry.
The sharp contraction in the transportation and hospitality sectors may hit the economy in the short term and consumption and trade will also take a hit in the first quarter. The number of small and medium-sized enterprises in China now exceeds 30 million and these contribute more than 60% of the country’s GDP and more than 80% of the labour force. If SMEs face severe challenges, it may significantly affect the country’s overall economic situation.
