Deutsche Bank’s analysis reveals that the COVID-19 outbreak will greatly inhibit the world’s economic activity. The initial projection for the Q1 2020 growth in the gross domestic product (GDP) has diminished for a considerable number of economies.
Which countries are most affected? How can recovery be attained?
The area of greatest damage
Being the epicentre of the outbreak, it is not hard to see that China is expected to take the worst hit due to the outbreak. The initial projections of Deutsche Bank positioned China’s growth at about +6.1 percent.
Taking the outbreak into account, this projection is lowered to +4.6 percent, down by 1.5 percentage points.
Figures from the United Nations Statistics Division reveal that China accounts for 28% of the world’s manufacturing output as of the year 2018.
Compared to the United States’ contribution of 16% in manufacturing output, China definitely has established itself as a superpower in manufacturing.
Lasering in to the origin of the outbreak, Wuhan, BCA data shows that nearly half of the industries in the area belong to the automotive sector. With this, countries that get vehicle parts from the factories in China, especially in Wuhan, are also expected to feel the losses from the outbreak.
No one is truly safe
Outside China, the effects of the outbreak can also be felt. In Japan, the projections of Deutsche Bank expects the country to slow down in GDP growth, now with an estimated – 0.4% Q1 2020 growth. As for the other emerging markets outside China, their collective GDPs are expected to slow down by 0.4 percentage points.
Even in the Eurozone and the United States where the outbreak hasn’t much penetrated, the GDP growth is expected to slow down by 0.1 percentage points.
With China’s influence in global economic activity, it is apparent that no one is truly safe. Even if the virus doesn’t manage to enter a country, the damage would come in the form of economic losses.
Road to recovery
The quarantine strategy in Beijing has definitely slowed down the spread of the virus and lowered the rate of infection to about 10 cases per day outside Hubei where Wuhan is located.
The price to pay is economic paralysation, with a substantial number of workers unable to work, leading to a workforce shortage.
In large cities like Shanghai and Beijing, work has pretty much resumed, though even in these economically powerful cities, operations are way below their full capacities.
However, this hurdle will not end once the virus is fully eliminated. Apart from the initial shock of the outbreak, the huge challenge for China is recovery. While the damage from the outbreak is already bad as it is, it could be aggravated with missteps in the end of the economic superpower.
To fight back against this economic slump, China would have to resort to strong policy easing strategies, some which they have begun enforcing, in order to rejuvenate liquidity.