The Covid-19 pandemic represents a significant test for the world economy, one that, unlike the SARS episode, is now much more strongly interconnected with China, as the main player on international trade chains.
Currently, China plays a much more important role in the production of goods, trade, as well as in the tourism and commodity markets (Chart 1), which causes global negative effects due to the virus that has grabbed humanity.
Around the world, companies have quickly felt the impact of diminishing production in China as a result of COVID-19, considering the key role that this country plays in global supply chains as a manufacturer of intermediary goods, especially in the IT industry, pharmaceutical, electronic products, being, also, the world’s main purchaser of raw materials.Therefore, the negative consequences of this situation for other countries are the following:
- direct disruption of global supply chains,
- decreased final demand for imported goods and
- services and the wider regional decline in business tourism and tourism flows.
- GLOBAL ECONOMY
Assuming that the maximum level of COVID 19 pandemic level will be reached in China in the first quarter of 2020 and that the pandemic will be more moderate and limited in other countries, global growth could be about ½ percentage point lower this year than expected in the prospect of November 2019, says economists from the OECD.Therefore, annual growth of world GDP is expected to decrease to 2.4% in 2020, starting from the already low figure of 2.9% registered in 2019 and even negative in the first quarter of 2020.Similarly, Kevin Hassett, the former White House Council of Economic Advisers chairman who remains in contact with Trump and the White House, said that the economy could contract by 5 percent in the second quarter, though a swift containment of the virus could lead to a bounce-back in the third quarter. (Goldman Sachs economists also predicted a drop of around 5 percent in economic growth in the second quarter.) Hassett predicted losses of perhaps over 1 million jobs in coming reports and a spike in the jobless rate. “We really could see the worst jobs reports we’ve ever seen in our history”, he says.
- TOURISM INDUSTRY
The new virus has a devastating impact on the tourism industry, which is considered a stimulating factor of the global economic system, given that tourism directly represents 4 ¼ of GDP and almost 7% of employment.
- THE AMERICAN AND EUROPEAN EXCHANGES
The US and European exchanges are in freefall due to the negative impact that the COVID-19 has on the global economy.
The Dow Jones index of the US market recorded the largest decline SINCE 1987, of almost 3.000 points (12.9%).
- FOREIGN INVESTMENTS
COVID-19 will cause a 5% to 15% decrease in foreign direct investment, compared to previous estimates, the most affected sectors will be the auto, air and energy sectors, shows a report by the United Nations.
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