international supply chains.
China has a much bigger role
in these networks than it did at the
time of the last major health problem
that emerged from the country - the
severe acute respiratory syndrome
(Sars) virus 17 years ago.
Hyundai, of South Korea, has
suspended its car production because
of problems with the supply of parts
from its operation in China - an early
warning sign of possible extensive
disruption ahead.
China is an important supplier
for the global motor industry and
the electronics sector. Many mobile
phones and computers are made in
China or at least have components
manufactured there.
Financial markets have also
felt the effect of the health crisis.
Stock markets around the world are
lower than they were two weeks ago.
China's market fell 8% on the first
day of trading after the holiday.
There has been a particularly
marked impact on the prices of
industrial commodities, as China
is such an important buyer. Crude
oil hit its lowest level in more than a
year.
It has dropped by about 15%
in the past two weeks, reflecting
declining demand from China -
underlined by reports the country's
leading refiner, Sinopec, is cutting
back.
A group of oil exporting nations
is considering production cuts in an
effort to reverse the price fall. Copper
is also cheaper - by about 13% over
That damage is, for the
most part, not due to
the virus itself so much
as efforts to prevent
it spreading.There are
strict restrictions on
moving out of Wuhan,
where the outbreak
began, a city with a
population of 11 million.
The lockdown, also
now extended to other
parts of Hubei province,
prevents businessrelated
travel as well as
the movement of goods
and workers.
the past two weeks. It is an important
material for the construction
industry, which is also sure to be
affected in China.
Many of the suppliers of these
commodities are emerging and
developing economies.
It is early days to attempt to
quantify the likely economic
effects. Much will depend on
how well the Chinese authorities
are able to contain the virus. But
some forecasters have made rather
tentative efforts to put some numbers
on the impact.
One example is the consultancy
Oxford Economics which predicts
the Chinese economy will grow less
than 4% in the first quarter of 2020
from a year earlier.
For the full year, the forecast is
average growth of 5.6%. For both
figures, the previous, pre-virus
forecast was 6%.
It also expects the global
economy to grow slightly less - by
0.2 percentage points - than it would
have done otherwise.
But Oxford Economic says this
is all based on an assumption the
"worst case scenario" will be avoided.
So there is a risk of the economic
damage turning out to be more
severe.
www.smartgovernance.in | February 2020 43