Economic and social impact:
The economic and social impact of the 2019–20 coronavirus pandemic has extended beyond the spread of the disease and efforts to isolate it, with widespread reports of shortages of medicines and manufactured goods due to factory disruptions in China, with some areas (such as Italy and Hong Kong) experiencing panic buying and resulting shortages of food and other grocery staples. The technology industry in particular is warning of delays in shipments of electronic goods. Several provincial-level CCP officials have been dismissed over their handling of quarantine efforts in central China, in a sign of dissatisfaction with the political establishment’s response to the outbreak in those areas. This is likely a move to protect Communist Party General Secretary Xi Jinping from public anger over the coronavirus outbreak. Some commentators have suggested that the protest over the disease may be a rare protest against the CCP. In addition, protests have increased in the Hong Kong Special Administrative Region over concerns about immigration from mainland China. Taiwan has also expressed concern about being included in any travel ban that includes the People’s Republic of China due to the “one China policy” and its disputed political status. Further, the Australian Treasurer has failed to meet his pledge to maintain a fiscal surplus due to the impact of the coronavirus on the economy. A number of countries are using the outbreak to show their support for China, such as when Cambodian Prime Minister Hun Sen made a private visit to China aimed at showing Cambodia’s support for China in combating the outbreak. Australia, mainland China and Hong Kong are expected to have the most direct economic impact from the unrest, with Hong Kong already in recession after a prolonged period of protests since 2019 and Australia widely expected to be in recession with GDP contracting by 0.2% to 0.5% in 2020. But Morgan Stanley expects China’s economy to grow by between 5.6% (worst-case scenario) and 5.9% in 2020. As mainland China is a major economy and manufacturing hub, the outbreak has been seen as a major destabilising threat to the global economy. Agathe Demarais of the Economist Intelligence Unit expects markets to remain volatile until a clearer picture emerges of the potential outcomes. Some analysts have estimated that the economic fallout from the pandemic on global growth could dwarf that of SARS. Dr Panos Kouvelis, director of the Boeing Center at Washington University in St. Louis, estimates a $300 billion impact on the global supply chain that could last for two years. OPEC reportedly “intervened” after a sharp drop in oil prices due to falling demand from China. Global stock markets fell on February 24, 2020, due to a spike in COVID-19 cases outside mainland China. By February 28, 2020, stock markets around the world had seen their biggest one-week declines since the 2008 financial crisis. Stock markets collapsed on March 9, 2020, with major world indices falling as the pandemic spread. Global conferences and events across technology, fashion, sports and more are being cancelled or postponed. While the monetary impact on the travel and trade industries has yet to be estimated, it is likely to be in the millions or more.
Background:
The epidemic coincided with Chunyun, a major travel season linked to the Chinese New Year holiday. National and regional governments cancelled a number of events involving large crowds, including annual New Year festivals. Private businesses independently closed their stores and attractions such as Hong Kong Disneyland and Shanghai Disneyland. Many Lunar New Year events and tourist attractions were closed to prevent mass gatherings, including Beijing’s Forbidden City and traditional temple fairs. In 24 of China’s 31 provinces, municipalities and regions, authorities extended the Lunar New Year holiday to February 10, instructing most businesses not to reopen until that date. These areas account for 80% of the country’s GDP and 90% of exports. Hong Kong raised its infectious disease response level to the highest level and declared a state of emergency, closing schools until March and canceling its New Year celebrations.
Demand for personal protective equipment has increased 100-fold, according to WHO Director-General Tedros Adhanom Ghebreyesus, leading to prices increasing by up to 20 times the normal price and delays in the supply of medical supplies.
stock market:
On Monday, February 24, 2020, the Dow Jones Industrial Average and the FTSE 100 fell more than 3% as the coronavirus outbreak spread significantly outside China over the weekend. This comes after stock market indices fell sharply in Europe following sharp declines across Asia. The DAX, CAC 40 and IBEX 35 were all down nearly 4% and the FTSE MIB fell more than 5%. There was a significant drop in the price of oil and a significant increase in the price of gold, to a 7-year high, due to the escalating concerns about the coronavirus outbreak. Various US stock market indices including the NASDAQ-100, the S&P 500 and the Dow Jones Industrial Average recorded their largest declines since 2008, with the Dow Jones falling by 2,013 points, the largest single-day decline since the 2008 financial crisis. On February 28, 2020, stock markets around the world recorded their largest single-week declines since the 2008 financial crisis. On February 27, European Central Bank President Christine Lagarde noted that while the ECB was monitoring the spread of the disease, it had not yet caused a long-term impact on inflation and therefore did not yet require a monetary policy response. On February 28, former Bank of England Governor Mark Carney said that the British economy (which experienced a recession and a decline in car manufacturing in the fourth quarter of 2019) had been affected by the outbreak because it relied heavily on tourism revenues and international manufacturing supply chains. On the same day, Federal Reserve Chairman Jerome Powell stated that the outbreak posed "evolving risks to economic activity" and that the Fed would use monetary policy "to act as appropriate to support the economy" but that "the fundamentals of the U.S. economy remain strong." On March 1, Bank of Japan Governor Haruhiko Kuroda stated that the BOJ "will strive to stabilize markets and provide adequate liquidity through market operations and asset purchases," and the BOJ later announced that it would repurchase up to 500 billion ($4.6 billion) of government bonds.
Oil Prices:
The decline in travel demand and the lack of factory activity due to the outbreak have had a significant impact on demand for oil, causing its price to fall. In mid-February, the International Energy Agency forecast that oil demand growth in 2020 would be the smallest since 2011. The decline in Chinese demand has led to a meeting of the Organization of the Petroleum Exporting Countries to discuss a possible production cut to offset the loss in demand. The organization initially reached a preliminary agreement to cut oil production by 1.5 million barrels per day following a meeting in Vienna on March 5, 2020, bringing production levels to their lowest since the Iraq War.
However, on March 8, 2020, Saudi Arabia unexpectedly announced that it would instead increase crude oil production and sell it at a discount ($6-8 per barrel) to customers in Asia, the United States and Europe, after negotiations broke down, with Russia rejecting calls to cut production. Before the announcement, oil prices had fallen by more than 30% since the start of the year, and after Saudi Arabia’s announcement they fell another 30%, although they later rebounded somewhat. Brent crude, which used to price two-thirds of the world’s crude oil supplies, saw its biggest drop since the 1991 Gulf War on the night of March 8. On April 20, 2020, West Texas Intermediate (WTI) crude prices fell to their lowest level since February 2016, falling below $0 for the first time in history and down to -$37 per barrel, meaning sellers had to pay buyers to take delivery and store the oil, under pressure from increased production, inventory build-ups and the price war between Russia and Saudi Arabia. It had a particular impact on American shale oil producers.
