Soon after the novel coronavirus was detected and confirmed in China on Dec December 31, the central bankers of the world created a comforting early analysis of its impact by referring to past experiences.
The bankers referred to the 2003 SARS epidemic outbreak and noted that there had been little economic impact of it.
However, now that analysis has all but failed. the bankers.
Till now the virus outbreak has infected more than 75,000 people in China alone as almost all economic activity of the second largest economy of the world has come to a near halt even as the virus is now spreading to countries outside China.
For example, in the latest figures, the number of people who were confirmed to have been infected with the virus in South Korea crossed 100 which, with one death, showed that the efforts of containment of the virus were not foolproof.
And the impact of the coronavirus is certainly going to take center stage as the finance heads and officials of the G20 countries – the 20 largest economies of the world, meet in Riyadh, Saudi Arabia, as they are now better equipped with the latest information about the length and breadth of the impact of the virus.
The financial officials would also be looking at the levels of use of coal and the extent of local travel in China to estimate the country returning back to normalcy. And keeping a tab on the number of infected outside of China will also help them to estimate whether the virus has been contained or not.
Japanese officials are tallying airline and cruise ship cancellations to ascertain whether the impact of the coronavirus will derail the planned economic rebound for the current year or not. On the other hand, Fed officials in the United States are concerned about the upending of the supply networks of American companies – many of which are critically dependent on manufacturing in China by talking to local business contacts and entrepreneurs affected by the virus outbreak.
Businesses “have supply chains that are intimately involved in China sometimes in ways they did not know,” Richmond Federal Reserve Bank President Thomas Barkin said in an interview Wednesday while referring to one of his conversations with a medical manufacturer that “had a supplier who had a supplier who had a part in China.”
There is no tried and true way to model the event for analysts to assess the extent of impact of the virus outbreak simply because of its ever changing and volatile nature.
One thing has however become clear to the bankers – the deep role that China plays in global supply chains. That essentially means that if the outbreak remains dominant for a longer period, it is most likely to cause a systemic problem.
“My read is if everything gets up to speed in the next few weeks it will be a minor bump that won’t be an issue. If you are out for months then you have a more significant impact on probably 10 to 15 percent of the economy” that depends on Chinese suppliers or exports to the country, Barkin said.
(Adapted from Reuters.com)