Coronavirus and Global Trade – COVID-19 Outbreak to Hit Global Economy

05 March 2020
Global Trade Data

International trade is affected by myriad factors. The latest event to affect global supply chains is Coronavirus or COVID-19 outbreak in China, which has now spread in more than 50 countries. Thousands of people in the world have died so far with China being reporting maximum numbers. China, which is the largest trading partner of global countries, has shut production units and affected with shipping worldwide. According to Export Genius data and market research reports, total trade by countries valued US$ 38949 billion in 2018, which might increase in 2019 as official figures are still awaited. But in year 2020, value of imports and exports in the world is most likely to fall substantially due to coronavirus disease, which is spreading day by day. Let’s have an initial analysis of coronavirus impact on global trade.

   

What is Coronavirus?



According to World Health Organization, Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). Coronaviruses are zoonotic, meaning they are transmitted between animals and people. The organization officially named the virus as COVID-19 (Coronavirus Disease) and recently it has declared coronavirus as pandemic.


Which Countries are Affected by Coronavirus?



Coronavirus, which originated from China’s Wuhan & is worst affected, has spread in more than 100 countries so far. Over 1 lakh global confirmed cases and almost 5,000 deaths have been reported. In China alone, more than 2,400 people have died due to COVID-19.


Major countries which have been worst affected by coronavirus are China, Italy, Iran, South Korea, Spain, France, Germany, USA, Switzerland, Norway, Japan, Sweden, Denmark, Netherlands, UK, Belgium, Austria, Qatar, Bahrain, Singapore, Australia, Canada, Malaysia, Hong Kong and Greece.


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Coronavirus and Global Trade


Supply Chain Hit Hard



COVID-19 would affect the international supply chain and resulting labour deficits and quarantine procedures could have major effects on production and shipping worldwide. Global import and export companies should have detailed logistics plans in place to compensate for the shortages and delays that are likely to result. The comparatively minor outbreak of sudden acute respiratory syndrome (SARS) identified in 2003, also originating in China, cost the global economy about $40 billion dollars.


Amid the COVID-19 outbreak, China’s Council for the Promotion of International Trade has issued 1,615 force majeure slips to help companies avoid penalties for not being able to meet contractual obligations.


The coronavirus outbreak might also affect the détente in the trade war between the United States and China. President Donald Trump promises to $200 billion in sales to China.


Identifying Alternatives


Global traders are now planning on how to recover from the disaster and anticipating the consequences of unexpected events on their suppliers and shippers. If a vendor relies on commodities produced in China, it needs to have an alternative source of production. The trade war has opened competitive production markets in India, Mexico, Indonesia and Malaysia, among other places.


In addition, it is crucial to assess whether transport services would have the capacity to ship existing inventory in the case of a crisis. Shipping costs might increase substantially, if there is a backlog and a resulting lack of transport space.


Falling Oil Demand



China is the world’s largest oil importer. With coronavirus hitting manufacturing and travel, the International Energy Agency (IEA) has predicted the first drop in global oil demand in a decade. The oil demand in the world has been hit hard by COVID-19 and the widespread shutdown of China’s economy. According to IEA, the fall is not expected by 435,000 barrels year-on-year in the first quarter of 2020.

  

ASEAN Regional Summit Delayed


According to media reports, the United States of America has delayed ASEAN regional summit scheduled to take place in Las Vegas next month due to coronavirus disease. Leaders from the Association of South East Asian Nations are due to be hosted by President Donald Trump on March 14 this year.


Mobile World Congress (MWC) Cancelled


Global mobile industry also felt the pain from coronavirus disease as the largest mobile event; Mobile World Congress (MWC) has been cancelled. In a statement, event organisers the GSM Association (GSMA) said.


Global Travel Industry Hit Hard



Empty hotels, cancelled flights and closed tourist sights. The coronavirus has taken tourism industry in its grip firmly. The situation is particularly bad in Asia and the European tourism industry is also becoming increasingly nervous. Approximately 150 million trips abroad made by Chinese people, a full 90% go to Asian countries, according to the reports. 


Tourism in China has almost come to a standstill, as popular tourist destinations including the Great Wall of China has been completely or partially closed. In 2018, around 150 million Chinese travelled abroad and spent $277 billion.


Many countries have banned visa of foreigners particularly from China. These countries include Australia, India, Iraq, Indonesia, Japan, Kazakhstan, Kuwait, Malaysia, Maldives, Mongolia, New Zealand, Philippines, Russia, Singapore, Sri Lanka, Taiwan, Turkey, United States, Vietnam and Italy. 



Will Coronavirus Trigger a Global Slump?


At the start of 2020, things seem to be looking not good for the global economy. Growth had slowed a bit in 2019 from 2.9% to 2.3% in the United States and from 3.6% to 2.9% globally. The International Monetary Fund projected a global growth rebound in 2020. The new coronavirus, COVID-19, has changed the scenario.


The economy of China has grown significantly in the last decade than it did previously. After decades of double-digit growth, China has managed to avoid a hard landing. But Chinese banks hold large amounts of non-performing loans, which is a source of major risks. As the coronavirus disrupts economic activities of China, there is a reason to expect a sharp slowdown this year. During the recent meeting of G20 finance ministers, the IMF downgraded its growth forecast for China to 5.6% for 2020, its lowest level since 1990.


As world’s economy is more dependent on China, this year global growth would fall considerably due to coronavirus outbreak. In 2003, China constituted only 4% of global GDP, today, that figure stands at 17%.


China being the global supply-chain hub, disruptions may result in poor output around the world. The regions which are likely to be most affected include Australia, most of Africa, Latin America and the Middle East.


For example, Japan’s economy already contracted at an annualised rate of 6.3% in the fourth quarter of 2019, owing to last October’s consumption-tax increase. This scenario could worsen this year and might shrink GDP due to coronavirus disease in China and Japan.


Due to present global situation, European manufacturing could also suffer considerably. Europe is more dependent on trade than, say, the United States and is linked even more extensively to China through a web of supply chains. Germany narrowly escaped slowdown last year, but this time, it may not be so lucky.


While the coronavirus outbreak continues, the implementation of Brexit will have massive consequences in terms of taxation, customs & duty and supply chain strategy.

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