After breaching the Great Wall of China the
dreaded virus has reached Vietnam, Thailand, Sri Lanka, Malaysia, Cambodia, Australia,
France, Germany, Canada and the U.S. So by all standards this is no more just a
Chinese problem. In an interconnected world, where China plays an important
role and with one in every six citizen of the world being Chinese the economic
implications of this virus outbreak can be disastrous. At this point,
uncertainty about the nature of the virus is so high that it renders quantitative
assessments meaningless but alarm bells have started ringing!
The corona virus first emerged in the city
of Wuhan, the capital of Hubei province. Both the location of the epicentre and
the timing of the year are important to assess the financial implications of
this outbreak. Recent estimates indicate that Wuhan is China's sixth-largest
city, with a population of about 11 million. It accounts for about 1.6% of
national GDP.
Wuhan is an important national transport hub;
given its central location and that the city is a stop on the two major
north-south and east-west high speed rail lines. Wuhan also sits on the banks
of Yangtze River and is a key internal port. It is also an important logistics
hub, accounting for 1.2% of national freight traffic by weight in 2018.
Restricted movement in the vicinity of Wuhan could therefore have broader
effects on the movement of goods and people. So this city is at the nucleus of
Chinese financial activity. Then again, the corona virus is hitting China
during Lunar New Year, a period when households tend to spend more on travel,
entertainment, and gifts. Understandably the initial stages of high uncertainty
are likely to affect spending. Consumer spending on entertainment and
gifts will also be affected. For entertainment, many will be reluctant to take
part in activities outside the home that could lead to exposure to the virus.
Many people are sure to have cancelled plans of their own volition to avoid
risks of exposure to the disease. The
impact is magnified by the fact that Wuhan, the city where it began, is an
important transport hub. Travel industries of countries which are heavily
dependent on Chinese tourists like Thailand, Australia, Malaysia and many
European hot spots will surely suffer as there tourists choose to stay safe and
stay home.
Restricted movement of
people in and around Wuhan could curtail output in some industries. This would
affect both manufacturing and service industries and could trigger temporary
production outages or a drop in activity. The supply-side impact, stemming from fewer people going to work,
may be limited to the Wuhan area so long as the recorded cases remain
concentrated in the city's immediate vicinity. Travel
restrictions are also a problem for any business that needs to move goods or
people around. Industrial supply chains will be affected. Some deliveries may
be disrupted and some will become more expensive.
Stock markets around
the world are taking note of this viral outbreak and treading cautiously. Indian financial markets have registered a fall for two successive
days naw. China is a much bigger player on the world stage and so any fallout
will be amplified. The Nikkei stock market suffered its worst drop in
five months yesterday. European markets also slumped. In the U.S., the Dow
Jones Industrial Average tumbled more than 450 points. Investors were
underestimating the potential fallout initially but now they are all alarmed
and cautious.
Greatly written Sir
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