The world economy is currently dealing with a deadly coronavirus outbreak, which was emerged in December last year in Wuhan, a city in China. Now the virus took its new avatar with named Covid-19 that not only is disrupted China but entire the world. With this outbreak, Reuters poll of economists reveals that China’s economic growth expected to slow to 4.5 percent in the first quarter of 2020, the slowest pace since the financial crisis. Conversely, the technology industry is also experiencing the impact of the coronavirus as companies are closing offices, stores, and factories in China and restricting employees from nonessential travels to the country.
However, as the growing threat of this pandemic is raising fears, the economic impairment is climbing across the world. While much of the country in lockdown, the virus could affect up to 42 percent of China’s economy, according to Standard Chartered. On the other hand, companies in the country may face challenges to make payments on loans leading to a rise in non-performing loans of US$1.1 trillion, according to Standard and Poor’s.
Moreover, Chinese airlines have been forced to ground planes that are expected to lose US$12.8 billion in revenue, while in the International Air Transportation Association (IATA) report, the airline industry worldwide is set to lose US$29 billion.
The shortage of products and parts from China is also affecting companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home in order to reduce the spread of the virus. In this regard, Apple’s manufacturing partner in China, Foxconn, is undergoing a production delay. Even some carmakers like Nissan and Hyundai have temporarily closed factories outside China due to not getting parts and components.
Disruption to the U.S. Economy
As the fear of Covid-19 is continuously increasing, its impact is now contracting global economy. Public health officials say the risk of contracting coronavirus in the U.S. remains low, while economists consider the international scramble to contain the spreading illness can weaken global growth. Industry experts further say that it is difficult to envisage the extent of the damage the outbreak can do to the U.S. economy.
There are key sectors of the country’s economy that stand to suffer the most from coronavirus. The U.S. financial industry is most at risk as the stocks in the country have suffered their worst week since the depths of the 2007-08 financial crisis when investors flee for safety. All three major U.S. stock indexes have fallen down at least 10 percent from their most recent peaks, abruptly ending a climb to new record highs.
The outbreak effect could also extend to the retail sector as the sheer drop in equity prices may take a toll on consumer confidence and spending, which drives over two-thirds of the U.S. economic growth. In the University of Michigan’s consumer sentiment survey, 20 percent of respondents cited the coronavirus market sell-off as a factor in their outlook on the economy.
Impact on India’s Automotive Industry
The automotive sector in India heavily relies on China for crucial automotive parts such as electronic components, fuel injection pumps, turbo chargers, airbag components, and more. The effect of the coronavirus outbreak will huge as China is one of India’s largest suppliers of automotive components. The slowdown in the supply of China-made components will also lead to shortages in India and could also slow down or stop production.
According to Fitch Solutions, the vehicle production in India to shrink by 8.3 percent in 2020 with increasing risk of supply shortage, possibly hitting domestic output if the virus spreads in the country. The virus in China has hit India’s manufacturing and exports of medicines, electronics, textile and chemicals as China is the biggest source of intermediate goods, worth US$30 billion a year. Considering reports, China exported goods worth US$90.4 billion to India in 2018, accounted for 14.63 percent of the exports. In the pharmaceutical industry, bulk drugs and drug intermediates accounted for US$1.5 billion.