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The Coronavirus & its economic impacts

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Utsari makes a very unique argument of how the disease is also impacting economy at large and how its equally an economic problem too.

What started as a rare pneumonic outbreak surprisingly surpassed the horrendous SARS(severe acute respiratory syndrome) which killed around 774 people in 2003. While the death toll of coronavirus has reached 1,671 across the world. Keep a tap on the figure as you read this. China referred to as “The world’s factory” for having the biggest manufacturing base, is now the biggest multiplier of Coronavirus accounting for around 69,000 cases yet.

It is believed that the economic shock which will follow soon can potentially shake the supply chains. The auto industry which employs 8 million people overall, has already sulked to a large extent.

Daimler and Volkswagen, Toyota, the German carmaker BMW closed its factories till 17th Feb due to a lack of components and labor. Every week that Chinese factories remain shut, $26 billion subtracts from world trade, according to an estimate by Ana Boata, Head of Macroeconomic Research at Euler Hermes.

Five import items that India depends on China for- electrical machinery, mechanical appliances, organic chemicals, plastics, and surgical instruments- make up about 28% of India’s import basket which could be hit due to a potential shutdown. Leading to a cascading construction, transport, chemicals, and machinery manufacturing. China accounts for only 5% of India’s exports, but certain commodities like organic chemicals and cotton could face headwinds as they have a sizeable share in exports.

Organic chemicals are likely to be among the worst-affected commodities among imports. India imports 40% of its organic chemicals from China. India also imports 40% of its electrical machinery from mainland China, and 57% from Hong Kong. Over half of India’s electrical machinery imports are likely to get affected.

Meanwhile, the stocks and the bonds have shown contradictory reactions. Stocks are at an all-time high, employment is booming as the virus is going easy on Wall Street. The Bond market, at the same time, is showing signs of a global crisis. Treasury debt, which serves as a safe-haven investment during geopolitical and economic volatility, has been in demand since the start of the year.

Whereas history witnessed the Indian market deteriorate in the first few months of major epidemics but this time its immunity is raising the eyebrows. Many Asian stock markets have been under pressure by the outbreak of the coronavirus outbreak as investors weighed the impact of the flu on economic activity. However, going by the market’s performance during the deadliest diseases in the past two decades, Indian equity investors may have little to fret.

 

The Chinese economy is undoubtedly the most affected. The consumer price index leaped to 5.4% in January 2020 from 2% in 2019. Shut facilities and involuntarily idled workers have reduced production and tightened product supplies, driving up prices.

As inflation slips out of control, the danger is spiraling prices that make living too expensive for people like the extreme case is Venezuela, which saw an inflation rate of 19,906% in 2019.

China has about 18% of the world’s population, a curb in consumer demand due to higher prices that could break through the world. China has imported a significant amount of agricultural products for many years: $21.9 billion in food items in 2017, according to Chinese government data. That was before coronavirus, trade wars, and African swine fever. Reductions in domestic production because of the current virus outbreak, as well as the previous drastic loss of pork herds, will only add to the need to purchase more from other countries. Due to China’s firm hold of the global economy, the multiplier effect of this virus is not something no country saw coming.

While social tension in other countries has kicked in, Chinese people have become the victim of sheer racism all over the world. This is the time for humans to unite and not to look down on each other. The economic impact of the virus is believed to last until the virus dwindles. There is no anecdote of the virus yet. Nor is the medical treatment sufficient to stop the deaths.

 

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