The viral outbreak in China has led to one of the worst economic setbacks to the Chinese economy, affecting the global economy as well. The fear has been further fuelled as there is no visible end to the epidemic. Heavy restrictions imposed by China over the movement of people and goods inside the country only aggravates the theory that no one is sure about a possible end to this epidemic. These restrictions combined with the strengthening of surveillance afforded quarantine suspects and extension of the Chinese New Year holiday have created fear and confusion among Chinese citizens and expatriates alike. Meanwhile, common people have been suffering from a shortage of medical supplies, while even getting groceries is becoming an increasing cause of anxiety. Directives to close public spaces and restrictions on movement have only aggravated the public panic.
It is a situation that has fostered panic around the world, with some criticizing the handling of the situation by China in the virus’s initial stage and more and more countries banning or restricting the flow of people from countries experiencing a breakout of the novel coronavirus. Chinese factories have almost come to a halt as migrant workers who travelled for New Year celebrations have not returned to their workplace, impeding production and China’s trade capacity.
The International Monetary Fund has estimated China’s annual growth 0.4 percent lower than previously while also warning about the possibility of a global economic slowdown of 0.1 per cent this year. S&P Global Ratings has revised its Chinese 2020 growth forecast to 5 per cent, down from 5.7 per cent, saying the impact of the coronavirus outbreak could take a heavy short-term toll. According to David Kotz, an economist and Professor Emeritus at the University of Massachusetts, the global economic scenario has not been promising over the last couple of years, especially in the case of China, and now the outbreak of the virus could lead to a global recession. He also expressed concern that there has been a lot of uncertainty in global markets for a while and that the novel coronavirus could prove to be the proverbial last straw.
While Chinese authorities claim that the negative impact of the virus outbreak will be short-term, questions over the ability of Beijing in minimizing the proliferation of the disease has worried investors on two counts. First, the growing number of people infected with the virus both in China and around the world. And second, it has exposed China’s vulnerability to health hazards, as there is no guarantee that such health related crises will not be repeated in the future.
The handling of the crisis by China in the initial stages in the form of suppressing information flow and harassing whistle blowers illustrates the psyche of the Communist Party when it comes to handling such a major crisis even in the modern era. Even optimists who initially thought that the crisis would be contained and some V-shaped recovery would be possible have now conceded the fallacy. In fact, many are now convinced that due to a lack of professional handling, especially in the initial stage, the whole world is at risk from the disease. Keith Lerner, Chief Market Strategist at Sun Trust Advisory Services, has expressed his worry that `no one is sure how far this will go’.
As a result of growing fears, social media is now susceptible to hate language against Chinese, especially with the lack of sufficient and reliable Chinese government information. Slogans otherwise considered racist, like `No Chinese Allowed’ in public places such as restaurants, are now seen in parts of the world and point to the anger felt in certain countries toward the country viewed as responsible for the virus’s initial outbreak.
The current uncertainty poses significant risks to economic growth and equity markets for the whole world. In the United States, the S&P lost an estimated $1.7 trillion in market value over two days in the third week of February. In London, the FTSE 100 index fell two per cent, its worst slump in a year. Similarly, the DAX index in Germany, Paris CAC 40 and Japan Nikkei 225 index among others have experienced downturns. Investors around the globe are now worried over the possibility of the novel coronavirus turning into a pandemic, with new cases emerging on a daily basis not only in China but around the world, and the grave repercussions this could have for the global economy.
Jan Lehman is the pseudonym for an expert on Asian affairs