China is facing a severe challenge with a new virus that has already killed at least 213 people and affected around 10000. The World Health Organization (WHO) announced it not only as a crisis for China but also a global emergency. Economists have compared the impact of economic damage done by the outbreak of severe acute respiratory syndrome – better known as SARS in 2002-2003, which also began in China.
Wuhan, the region where the outbreak took place, is a significant transport hub. The transport restrictions imposed by Chinese authorities have increased the problems for all the businesses that need to supply goods and raw materials. Due to the affected supply chain, many commodities are expected to be disrupted, and many are expected to become costly.
According to WHO, there have already been 98 reported cases in 18 countries. The restrictions imposed by China in Wuhan and its neighbouring cities have led to massive losses in tourist industries. Public places and tourist attractions have been shut down, causing significant damage to the Chinese economy, especially during the Chinese New Year.
A study conducted in 2017, by economists Victoria Fan, Dean Jamison, and Lawrence Summers, forecasted annual losses from any pandemic outbreaks to be around $500 billion or 0.6% of global income per year. Another study predicted that pandemic disease events would cost the global economy over $6 trillion in the 21st century.
Coronavirus has not only to impacting tourism but other sectors as well. Carmakers like Nissan and Renault are sending their foreign staff to their respective homes. General Motors is monitoring the situation and has issued strict advisories to team members to follow official guidance to prevent the spread of the virus.
Although the immediate impact will be on travel, steel production could also be affected as the centre of the coronavirus houses, Wuhan Iron and Steel Corporation, also known as WISCO that transports its raw materials through the Yangtze River. Wuhan is a well-connected transport hub along the Yangtze and Hanshui rivers in the central part of China.
How Indian Economy Reacts to Coronavirus?
Data issued by the Indian Ministry of Tourism showed China as the 8th most significant source of foreign visitors, contributing around $760 million to the Indian economy. As per the Indian Department of Commerce China is among the top three countries India exports commodities to. The curbs imposed in affected cities of China, if extended, the demand for raw materials, consumption of products, and manufacturing are expected to decline.
Imports of high-grade steel for Indian automotive and high-end electrical steel were the most significant imports from China in the fiscal year 2018-2019.
The prices of essential metals like aluminium, copper and zinc have fallen by 2.3 per cent and 3.7 per cent in the past three trading sessions on the London Metal Exchange. India is also a significant importer of oil and the world’s sixth-largest exporter of refined petroleum products. The outbreak of coronavirus has reduced oil prices in the global market. Lower prices will result in lower inflation.
As per market experts, steel production and sale to and from China is not expected to affect if the lockdown and spread of the virus are contained in the coming three to four weeks. But if the shutdown retains for a few months, it may cause demand destruction and create a repel effect in the Indian market as well.
The outbreak of the virus is expected to damage trade. It is too early to forecast whether it will benefit India or not. Companies need to mitigate the risk and create an action plan in case the situation like Wuhan, China is effectuated in India.
