Headline after headline focuses on COVID-19 infection rates and deaths. It’s impossible not to pay attention to the human cost of the disease but some are already looking ahead to the economic impact COVID-19 will have on the world.
The country most affected by COVID-19 is China, where the disease originated from. In order to try and control the spread of the disease, the Chinese government initiated a lockdown for most of the country. The vast majority of the population is advised not to leave their homes unless absolutely necessary. The result is empty factories, offices, and shops.
Like the US, China relies heavily on small and medium-sized businesses. They comprise over 60% of China’s GDP and the taxes they generate contribute over half of the government’s revenue. But businesses are haemorrhaging money because they’re still required to pay employees during the lockdown. As a result, many businesses have already permanently closed with many others soon to follow suit. A survey indicates that as much as 80% of China’s small and medium-sized businesses will not survive three months of the lockdown.
Stimulus packages are already being deployed to try and keep businesses afloat but huge impacts are already being felt. Many companies rely heavily on Chinese customers. China is the largest global manufacturer which means almost every supply chain is now interrupted. As the largest manufacturer, China is also a huge importer of raw materials like crude oil and copper.
There are many indirect ripple effects as well. The tourism industry has already lost an estimated $1.5 billion because Chinese citizens cannot travel. Schools are shut down and will have to push back their schedules which affects local businesses. Even Apple is warning that their quarterly earnings will be weak because of COVID-19.
Many are comparing COVID-19 to SARS from 2002-2003. Long term effects of SARS are best estimated at 1% less economic growth. Economists estimate COVID-19 may result in 2% less growth. That may not seem like a lot but that would result in the slowest growth rate since the great recession.
Despite huge negative media coverage, China’s government acted much faster and more efficiently for COVID-19 than SARS. As a result, experts are optimistic that long term negative effects can be kept at a minimum if they can contain the disease. Ultimately, it’ll come down to time, preparation, and a little luck.