How Corona Virus is Impacting the Global Economy
How Corona Virus is Impacting the Global Economy

How Corona Virus is Impacting the Global Economy?

The economic impact of Coronavirus is extremely unknown because we don’t know the size, we don’t know the impact, we don’t know how this will spread across countries. However, it is not far fetched to think that economic impact will be huge, mostly not because of the mortality rate that the virus has shown until now. Instead, it will be because of the economic measures that have been taken to undermine the spread of the virus. so today we will discuss How Corona Virus is Impacting the Global Economy.

Rate of Impact

OECD has calculated a decline in the GDP of the world to 2.5 or 2.6% this year. This would be substantial decline in the world GDP. However, you can think that this can go into even a bigger impact to the world economy. 

China was supposed to grow this year at 6%. If you think that this virus will have an impact only on the Chinese economy, assume that nowhere else. And we imply a decline of 2 or 3% on the first quarter GDP, so I’m also assuming that will be a V effect. If that happens and then China keeps growing at a normal rate. Let’s assume about 6% per year, that will imply that the Chinese GDP will go down almost 4 to 5%. Actually, if you do minus 2% in the first quarter and 6% in a yearly basis in the next 3 quarters, the GDP of China will grow this year just 1%. This 1% implies that the world will grow 1.3% this year. This is a very low rate of growth for the world economy. Plus, assuming that the impact is only on China. Coronavirus will surely screw the world economy in bad way. 

We need to add to this potential impact on commodity exporter countries, on Korea, on Italy, and the rest. This could possibly result to a global recession due to the Coronavirus. 

Two Aspects of this impact

  1. We need to be very careful about the policies that are undertaken. The RBI for example, has been pumping more money into the system. If I have a supply shock, if I have a problem with the value chain, you can dump all the money around the world. However, this won’t have any effect. The real problem is not being fixed. 
  2. Whatever the behaviour of the virus is, that will have a long-term effect. One thing that this virus has done is to make it clear that to have a dependency on China in the value chain is extremely risky. Thus, whatever happens, we will see in the future, a spread of this value chain. This might imply a decline in the rate of growth of the world because we will lose efficiency. 

The trade war and the Coronavirus might be the elements that will trigger a process of deglobalization in the world. This has not been the trend since the 1970s. Since the 1970s we have seen a trend towards globalization and towards a better use of the resources around the world. If we are going to a deglobalization, balkanization, whatever you want to call it. The long-term rate of growth of the world will tend to decrease. This is something we have to have careful of. So This is the impact of the Coronavirus on business | World.

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