COVID-19: Prolonged industrial shutdowns to hit global industry, trade

Medical staff check a patient's condition at a temporary hospital converted from "Wuhan Livingroom" in Wuhan, central China's Hubei Province, Feb. 10, 2020. In face of the outbreak of the novel coronavirus pneumonia epidemic, Wuhan authorities have transformed public venues such as exhibition centers and gymnasiums into temporary hospitals. The hospitals have a large capacity of treating patients with mild symptoms and play an important role in isolating the source of infection and cutting off the routes of infection during epidemic prevention. The first batch of patients was hospitalized

London,  The outbreak of the novel coronavirus (COVID-19) could cause disturbance to industrial production and global trade flows, according to IHS Markit.

In a note on impact of COVID-19 on the Chinese and global economy, Tomasz Brodzicki of IHS Markit said that the disturbance to industrial production and global trade flows and global logistic networks could be more severe due to a drag caused by the prolonged production shutdowns.

If it is contained to a large extent to China, it will impact the country the hardest. If it starts to spread outside, the impact could be significantly more severe affecting, in particular, the ASEAN countries (Hong Kong, Singapore, etc.) or Japan, the note said.

The disturbances within global value and logistics chains could accumulate if the containment measures will have to be prolonged. The impact could be the largest on economies most linked to or dependent on China.

It is worth to note that several economies are already reporting the adverse impact of the outbreak. These include for instance Singapore (Singapore’s Prime Minister Lee Hsien Loong is already referring to a potential recession) or Germany (Germany technically registered zero growth in late 2019, and the prospects for the expected turnaround in early 2020 disappear as China is one of the key export destinations and suppliers to German economy).

The report noted that the market sentiment overall is bad and the increased global uncertainty due to the outbreak can adversely affect the prospects for a global recovery.

The outbreak of the novel coronavirus (COVID-19) is for the time being the most significant black swan of 2020 and the expected impact of COVID-19 could be larger than of SARS in 2002-2003.

China has reacted fast in comparison to SARS and introduced several unprecedented containment measures affecting the economy.

The impact of the coronavirus will mostly hit China’s first-quarter growth. It could extend to the second quarter as well if the outbreak lasts longer. The overall impact is likely to lower the Chinese real GDP growth rate in 2020 to 5.4%.

IHS Markit noted that the Chinese economy is likely to bounce back after the outbreak is contained with a rise in the activity in the Q2/Q3 of 2020.

The disturbance to industrial production and global trade flows and global logistic networks could be more severe due to a drag caused by the prolonged production shutdowns.