With the deadly coronavirus now present in every continent in the world except Antarctica, the economic consequences of the disease are starting to be felt deeply around the globe even as countries grapple to control the spread of infection.
Travel and tourism have already been badly mauled as people stay at home and events are cancelled/ postponed in the face of tougher health controls and travel bans. Even our local event of the year, the Hong Kong 7s, has sadly succumbed to the inevitable.
For the airline industry alone, the International Air Transport Association estimated the Covid-19 could cost carriers US$113 billion in lost passenger revenues. Hong Kong’s Cathay Pacific Airways slashed its services to mainland China by around 90 percent until the end of March, while the virus outbreak has been the tipping point for the collapse of British regional airline, Flybe, in early March.
Bloomberg estimated the virus could cost the global economy US$2.7 trillion in lost output – equivalent to the entire GDP of the U.K. and sparking recessions in the U.S., the Eurozone and Japan.
In Asia, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) said the Covid-19 virus could cut GDP growth this year in the Asia-Pacific region by between 0.6 and 0.8 percent. That would be the equivalent of a fall of US$132 billion-US$172 billion while global exports would drop 7 percent and imports 9 percent.
While the virus is spreading its way around the world the impact is likely to be disproportionately felt more in Asia because of Asia’s reliance on China as a manufacturing and processing centre.
China saw a 17.2 percent drop in the value of exports in January and February as factories were forced to take an extended Chinese New Year holiday, leading the country to record at US$7.1 billion trade deficit, the first time imports have outstripped exports in two years.
ESCAP said: “China is an important buyer of primary products, such as agricultural and mining commodities, from Australia, Malaysia and Mongolia; technology intensive goods such as electronics and machinery from South Korea, Singapore and Vietnam as well as labour-intensive goods including textiles, leather and paper from Indonesia, Thailand and Vietnam.” “Accordingly, these economies and specific sectors are expected to be hit the hardest with the forecasted slowdown in China’s domestic consumption,” ESCAP added.
Stimulus measures being considered by China and other governments could kick-start a rebound in economic activity, while government rescue packages for the worst hit businesses should provide a cushion for some countries.
Nevertheless, a think-tank within the Hong Kong-based trading group is already predicting the virus will accelerate changes that are already being seen in the marketplace:
- online retail sales as a proportion of total retail sales will expand at a faster pace;
- partnerships between e-commerce platforms and merchants will strengthen; and
- digital transformation of business and retail (so-called online to online – O2O)
There is also the sense manufacturers will look to overhaul their supply chains, placing less reliance on a single manufacturing centre, like China, in favour of a diversification of sources.