COVID19, also commonly referred to as Coronavirus, is one of the viruses that appear every ten years or so that are potent and deadly enough to attract the attention of the entire global community. Most recent, in 2014 it was the Ebola outbreak in West Africa where more than 28,000 people were infected, and 11,000 people died before the international public health emergency ended in 2016. 17 years ago, it was Severe Acute Respiratory Syndrome (SARS). By the time the SARS outbreak was put under control, the World Health Organization (WHO) had received reports of SARS from 29 countries- 8,096 persons infected and 774 deaths.
Today, it is Coronavirus, neither Ebola nor SARS was able to spread as fast as COVID19. As of March 9th 2020, according to WHO, the total confirmed cases are over 100,000, with a 3.4 per cent mortality rate, and over 80 countries reported with cases. According to the United States Center for Disease Control(CDC) what makes COVID19 highly contagious is its mode of transmission. It can be transmitted person to person, or via respiratory droplets produced when an infected person coughs or sneezes. COVID19’s death rate is 3.4% which is not high compared to SARS(9.8%), and Ebola(50%) however, its transmission rate is much higher than either of the two. Given its high transmission rate we have already seen, it’s only a matter of time before it is declared a global pandemic. Whether coronavirus is declared a global pandemic or not, it will inevitably have a catastrophic effect on the global economy especial the low- and middle-income countries.
In the World Economic Outlook that was published in January 2020, IMF projected Global growth to rise from an estimated 2.9% in 2019 to 3.3% in 2020. However, under current conditions, it is very foreseeable that the projected growth is going to be downward revised to reflect the impacts of coronavirus among other global risks.
In 2003, SARS outbreak that originated from China cost the Global economy roughly $40 billion at a time China’s economy accounted for roughly 4% of the World GDP, and was the 6th largest economy by average GDP, following US, Japan, Germany, France and UK. 17 years later, China’s economy accounts for roughly 17% of the global economy and it is the second-largest economy. Therefore, basing the calculations on the economic impact of SARS, Coronavirus undeniably might cost the world more than four times what SARS virus cost the Global economy in 2003.
Lately, the risks of coronavirus have increased significantly as more cases are reported in the US, Italy, Iran, Japan and South Korea. Paul Donovan, the chief economist of UBS Global Wealth Management, warned that because economic growth is mainly supported by consumer spending, this is where fear and risks from coronavirus could do the most damage. The fear of infection would mostly hit production as well as consumer spending as residents of affected countries are advised to stay indoors, hence less economic activity.
Last week, following new outbreaks in Italy, Iran and a deteriorating situation in South Korea, the stock markets tumbled, with S&P 500 declining by 3.35%, Dow Jones Industrial Average by 3.56%, and the Nasdaq Composite by 3.71%, leading to a loss of $1 trillion off the market value of global equities. It is important to point out that the stock market is not necessarily a predictor of a good or bad economy but it is a good indicator of how major investors are going to react to different shocks in the economy. Also, global commodities have been significantly impacted, crude oil prices dropped for a fourth consecutive session, making it one of the worst-performing commodities to this point in 2020.
Globally, beyond a disruption in the integrated international supply chains, different sectors such as; tourism, manufacturing and transportation have been heavily impacted. In addition to the distress of these sectors, and an increase in supply disruption from China- the largest exporter of intermediate manufactured goods and other major exporters, transport and import costs are also expected to rise, leading to high prices of goods globally.
Currently, cases of Coronavirus have been reported in 9 African countries: Algeria, Cameroon, Egypt, Morocco, Nigeria, Senegal, South Africa, Togo and Tunisia. A few weeks ago, before the first cases were reported in Africa, the continent was already affected mainly due to its close ties with China, so the arrival of the virus only exacerbates an already fragile situation. On the onset of COVID19 outbreak, six of the eight major African airlines suspended their flights to and from China. The economic impact of the suspension is almost unmeasurable because it doesn’t only stop business people to do trade, it stopped students attending school, puts family reunions on hold, but mostly hindered existing and well-established supply chain routes for both essential and non-essential goods between Africa and China. Given that China is one of the biggest trade partners with Africa, this is going to halt the economic progress Africa has enjoyed over the past few years. Research from ODI shows that should Chinese demand fall by 1% due to the Coronavirus outbreak, low- and middle- income countries would lose $4 billion worth export goods and $0.6 billion of tourism receipts. If oil prices fall by 5% amidst lower global demand following the outbreak, Sub-Saharan African countries would face a $3 billion cut on its mineral fuel export revenues.
The second and probably even more disastrous economic impact of the COVID19 pandemic on Africa is on health. The most obvious implication is the loss of life from the disease. But even if there was a vaccine or treatment discovered in the next few months which is unlikely, a mass outbreak on the continent can potentially overwhelm and possibly break the health care systems due to a high number of sick people. According to the WHO, Africa has only an average of 2.3 health workers (all categories combined) per 1000 population, compared to 18.9 and 24.8 for Europe and America respectively. Given the lack of enough health care workers and the already fragile health care system, one can see a scenario in which such pandemic can lead to an economic collapse of some countries if proper measures are not taken ahead of time.
As of now, the question is not if the Global growth is going to be downward revised, but rather if an economic rebound could happen soon following a decline in the expected global growth. According to an analyst by Bloomberg economists, even in a containment scenario, China’s first-quarter GDP growth may slip to 4.5% year-on-year, a drop from 6% in the final quarter 2019, and the lowest since 1992. Therefore, even in the best-case scenario that the outbreak is contained we should expect a decline in global growth. I can only hope this is not another Global recession on the way, though it will depend on how soon the outbreak is contained.