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Impact of the Coronavirus on the World’s Economy Today

Due to the COVID-19 pandemic, the service sector activities such as tourism took a dive, manufacturing sector is likely to struggle further. As China comes out of lockdown, social unrest elsewhere could become an issue. The coronavirus pandemic continues to be one of the main topics of recent weeks. How big is the impact of the epidemic across the world for now?

As the U.S likely to become the epicenter in the weeks ahead, it is going to take some time for the dust to settle and for governments to assess the damage. The governments are all responsible to control the spread with lockdowns, quarantines and even Movement Control Order (MCO) in Malaysia. The greatest concern following after the lockdowns and quarantines will be social unrest. Social unrest could turn into civil war should governments fail to support the needy.

What does economic data tell us about the impact of the coronavirus?

Service sector activity took the biggest hit, with travel & tourism, F&B, and retail amongst the biggest areas hit as countries went into lockdown. In China, service sector activity now accounts for almost 50% of the economy, in the U.S and the UK it’s 70%. Then there was the reliance on service sector activity across the Eurozone to counter the contraction in the manufacturing sector. Manufacturing sector activity held up pretty well when considering China’s February numbers but things may go from bad to worse.

In late March we heard of companies shutting down production facilities to add support to contain the virus. This coupled with the broken global supply chain suggests that the sector will take quite some time to recover. There could be better numbers out of China, but with supply chains decimated even China may struggle to see a sharp rebound.

Service sector activity could bounce back more quickly, though the length of the shutdown and impact on unemployment will be the key.

How is the situation in China?

Over the last few days, the Chinese government is easing confinement rules, supported by a marked fall in the number of new cases. Hubei has opened its doors once more after 2-months of lockdown, with Wuhan having only 1 new case reported on Monday. There is still concern about the impact of freedom of movement and whether there will be any pickup in the number of new cases.

However, the good news is that China is looking to return to business as usual. With the support of both monetary and fiscal policy, China will be looking to rebuild the supply chain. It’s going to take more than a couple of weeks to recover, however. Domestic demand will remain a drag, with global demand likely to remain dire as economies remain in shut down mode. The global spread of the virus is going to need to abate for supply chains to recover. Global demand will also need to return, which will likely take some time.

Any hint of the virus lingering, however, and service sector activity will remain under pressure.

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