The economic impact of COVID-19 on Countries
Not much is currently known about the disease. Although public health officials are still determining the medical impacts of the virus along with certain key characteristics, such as the incubation period, we believe the economic impact will depend in part on how the public reacts to the virus. Public activities could allow the virus to spread more rapidly and widely, or it could create unnecessary costs.
United States Guidelines for the Prevention of "Pandemic Flu"
In 2017, the US Centers for Disease Control and Prevention (CDC) published guidelines for the prevention of "pandemic flu." The CDC recommendations for "non-pharmaceutical interventions" included:
Voluntary home isolation of sick people
Voluntary home quarantine of exposed family members
Social distancing (including school closings, social distancing at workplaces, and postponement or cancellation of mass gatherings)
Domestic Measures (such as routine cleaning of frequently touched surfaces)
Countries that apply same CDC-style recommendations regarding COVID-19 may face less dislocation, although there may still be an economic impact. School closures and social distancing could reduce the available workforce in an area experiencing a pandemic, for example. We could then see mild economic impacts underway as outbreaks occur in various regions.
A severe public reaction in which local authorities or the population itself decide extremely strict measures in a certain area could create significant economic costs, particularly in regions and for industries that specialize in production that cannot be made virtually ( as manufacturing). If many countries choose this type of response, the impact on the world economy could be quite large.
Economic impact
Direct impact on production
Chinese production has already been substantially affected by the closure of Hubei and other sites. Some other countries are also beginning to feel a direct impact as their authorities implement similar measures. The slowdown in China has effects on exporters to that country. According to the World Bank, the largest sources of imports for China are Korea, Japan and other Asian countries.
Market and supply chain disruption
Many manufacturing companies depend on intermediate inputs imported from China and other countries affected by the disease. Many companies also rely on sales in China to meet their financial goals. The slowdown in economic activity - and transport restrictions - in the affected countries is likely to have an impact on the production and profitability of selected global companies, particularly in the manufacturing sector and the raw materials used in manufacturing. For companies that depend on intermediate goods from affected regions and cannot easily switch sources of supply, the magnitude of the impact may depend on how quickly the outbreak fades. Small and medium-sized businesses may have a harder time surviving the shock. Travel and tourism businesses face losses that are probably not recoverable.
Financial repercussions on companies and financial markets
Temporary input and / or production shocks could put stress on some firms, particularly those with insufficient liquidity. Traders in financial markets may or may not correctly anticipate or understand which companies may be vulnerable. The resulting increased risk could reveal that one or more key financial market players have taken investment positions that are not profitable under current conditions, further weakening confidence in financial instruments and markets. A possible event (probably low probability) would be a major shock to financial markets as participants become concerned about counterparty risk. A somewhat more likely possibility is a significant decline in equity and corporate bond markets, as investors prefer to hold government securities (particularly the US Treasury) due to the uncertainty created by the pandemic.
Scenarios
These possible scenarios are purely descriptive ideas about the possible paths that the disease outbreak, and the world economy, could take.
The worst is over. Transmission in China has already declined. Although some isolated outbreaks occur elsewhere, they do not create a massive spread of the disease. As the number of cases globally stabilizes, China's economy returns to normal, and there is little impact outside of some areas like Iran that are not important to the world economy. China's GDP is hit hard in the first quarter of 2020, but recovers in the second and third quarters, although some of the lost production is never replaced. Some specific companies outside of China experience short-term supply disruptions, but the impact on the global economy is small and temporary.
The year of the virus. Although the spread of the disease in China is slowing, outbreaks are occurring continuously around the world. Each outbreak requires a slowdown in production in that area, and in a globalized world, that means continuous disruptions occur in different regions and industries as outbreaks occur and are controlled. The overall effect is to disrupt economic activity enough to significantly slow global growth. Companies that are agile enough to handle vendor switching and that have enough liquidity to survive periods of low sales and revenue will have a competitive advantage.
Response to the global pandemic
Economic centers around the world are subject to Wuhan-style closures as people panic over the spread of the virus. Uncoordinated country-by-country decisions interrupt the movement of people and goods. Global manufacturing declines, as businesses with international supply chains can operate only intermittently. Tourism and related businesses decline dramatically, and tourism-based businesses and regions suffer. It takes more than a year for the World Health Organization and the United Nations to develop an accepted global response that prioritizes cost-effective and cost-effective health measures for the broader economy, and for that response to be accepted in the major world economies. Global GDP stagnates, international trade falls, and a global recession is an obvious possibility.
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