How the coronavirus threatens global economy - ERDAL TANAS KARAGÖL

How the coronavirus threatens global economy

In the past years, external factors posed more of a threat to global economies than macro indicators.

These threats are composed of global risks such as trade wars, the U.S.-Iran conflict and as a result, an increase in oil prices and currency wars.

States used to be able to solve the problems caused by these risks in the past, even if partially, by engaging in dialogue.

However, unlike global risks, the coronavirus that originated in China has the potential to threaten the whole world in many respects because of its fast-spreading nature.

Since the country where the virus emerged is China, it is necessary to give it the attention it deserves.

Because when we take into consideration China’s share in global economy and its trade with world economies, it obvious that this situation poses a threat to both China’s and the global economy.

China high share in global economy

China is the world's second largest economy in terms of gross domestic product (GDP).

Its approximately $14 trillion GDP makes up 16 percent of the global economy, with a 13 percent share of world trade.

It ranks only second to the U.S. in terms of GDP, and claims the top spot in global trade.

For this reason, forecasts show that the coronavirus will not only threaten Beijing’s economic growth but that a contraction will occur in global trade volume due to the trade that China conducts with the rest of the world, as well as having a negative impact on the global economy’s growth.

The impact of epidemics on the global economy was clearly observed in 2002-2003 during the outbreak of the SARS virus.

Even though China’s GDP was significantly smaller in 2002-2003 as well as its share in the global economy, the SARS endemic caused China’s GDP to plummet.

Will the virus threaten global growth?

Global economic growth forecasts had already been downgraded for the year 2020.

The virus is a harbinger of the contraction of global economy, as China and Asian countries produce more than half of the world's GDP and many international companies move their manufacturing operations to China and Asia.

On the other hand, the fact that demand for Chinese-made products through e-commerce will diminish and that many countries are suspending flights to the country is a grave issue in terms of both tourism and trade.

This situation has led many institutions to downgrade their ratings of China’s economic growth and announce a new forecast.

JP Morgan expects that the coronavirus will diminish China’s growth and accordingly downgraded its rating, which was 6.4 percent in the first quarter of 2019, to 4.9 in the first quarter of 2020.

According to the forecast by S&P, the possibility of the coronavirus spreading to other countries will impact China’s growth, causing it to be one percent less than originally expected by the end of 2020.

However, the silver lining is that if the necessary economic measures are taken and the epidemic is short lived, the damaged can be quickly, albeit partially, reversed.

But it seems that, with the swiftly spreading quality of the virus, it will continue to negatively affect economic growth expectations— at least for the time being.


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