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How coronavirus could affect the global economy?

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Overview

The new coronavirus is very dangerous and continues to spread rapidly, although key details of its nature are still unconfirmed by the WHO. The virus spread to at least 23 countries, infecting more than 17,000 people and killing at least 425. On January 30 The World Health Organization declared a global emergency over the new coronavirus. Most of the cases, so far, have been in China. As we know China is the second-largest economy in the world and widely considered the engine of worldwide growth. China’s economy already was on the ropes as a result of its trade war with the U.S. Profits fell in its industrial sector in 2019 for the first time in four years.

The spread of the coronavirus threatens to cause job losses and push consumer prices higher, compounding economic woes that already exist. Chinese Companies are likely to face stronger oversight over actions that could adversely affect employment and the price of essential items. However, China’s economy is more vulnerable today, with productivity and overall economic growth falling and the effects of the US-China trade conflict.

What is a coronavirus?

It is a novel coronavirus, it has come from animals. The infections can range from the common cold to dangerous conditions. The virus causes pneumonia. Those who have fallen ill are reported to suffer coughs, fever and breathing difficulties. On 28 January, researchers at the University of Melbourne announced they had recreated the virus. This should aid the development of early diagnosis and, eventually, a vaccine.

 

 

The impact in the global economy

The impact is already being felt globally, last week the Stocks get hammered as investors worry about how the new virus will impact the world economy. On Friday The Dow Industrials fell 500 points, S&P 500 lost 51 points and the NASDAQ plunged 175 points. On Monday Feb-03 the Shanghai Composite index closed nearly 8% lower, its biggest daily drop for more than four years. The real danger, though, is to companies in the travel and tourism industry. Several countries issued travel warnings about China; this will have a negative impact on global GDP. Airlines stocks dip as major operators, including American Airlines, (AAL) Delta Air Lines (DAL) and United Airlines (UAL), all announced suspensions of their China flights. Lufthansa and its subsidiaries Swiss and Austrian Airlines canceled their connections to and from Beijing until February 29.

On the other hand, Apple Inc. decided to shut all official stores and corporate offices in mainland China until Feb 9. While Alphabet’s Google temporarily shut all offices in China, Hong Kong, and Taiwan. McDonald’s decided to close a few hundred of its 3,300 stores in China but noted the overall impact on earnings thus far is minimal if the virus is contained in China. Conversely, Starbucks also closed more than half of its 4,300 Chinese stores.

The oil market is already feeling the pain as China is a major consumer. Brent crude was trading at around $55 a barrel on Tuesday, having slumped more than $10 over the past month.

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