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BEYOND THE CORONAVIRUS CRISIS: PREPARE NOW

11
MARCH, 2020

Effects Of Coronavirus On Industry

The cost of novel coronavirus pneumonia will surpass all previous outbreaks. But companies that act now can minimize the worst effects and emerge from the crisis stronger.

Corona Virus and Industry Of China

As officials in China and around the world marshal their resources to contain the human cost of the novel coronavirus pneumonia outbreak, many businesses are just beginning to assess the economic effects. It is early days, but China’s experience with epidemics over the past 20 years can provide a sense of what this latest outbreak may mean for China’s economy. Also, history provides some signposts that can help companies navigate through the crisis and emerge stronger and better positioned.

Among those past epidemics—avian flu, swine flu, and SARS—only the 2002–2003 SARS outbreak seems truly comparable. So far, the novel coronavirus appears to be less deadly to those it infects, with a mortality rate of 2%–3% vs. SARS’ rate of 6.6%. But it is much more contagious—coronavirus already has eight times the number of cases reported during the entire SARS epidemic, and the resulting number of deaths is now higher as well.

The resulting economic impact will be severe. Both epidemics triggered nationwide containment actions, but this time, the Chinese government acted faster and with much stricter measures, such as a widespread quarantine, nationwide extended public holidays, restrictions on interprovincial travel for some 20 provinces, and local transport controls.

Financial Crisis Due to Coronavirus

In financial terms, the biggest difference between this outbreak and SARS is the size of China’s economy, which was RMB 13.74 trillion in 2003. SARS reduced China’s GDP by almost 1% or approximately RMB 100 billion. In 2003, however, China represented just 4% of the global GDP.

At almost RMB 100 trillion today, China’s economy is seven times larger. It makes up more than 16% of global GDP and plays a critical role in many global supply chains. Although lower than SARS as a percentage of China’s GDP, the current estimates of coronavirus’s economic impact call for a 0.2%–0.5% reduction in China’s GDP, which could cost as much as RMB 500 billion.

Effect Of coronavirus on GDP

 
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Lessons from SARS

We won’t know for some time whether those early estimates will prove too optimistic, but China’s experience with SARS still provides a useful benchmark for what to expect (and what may be different) with this more virulent outbreak.

The impact of SARS on China’s economy was short-lived and largely confined to the second quarter of 2003. The GDP growth rate fell 2 percentage points that quarter but then rebounded during the remainder of the year.

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Industries hit by a coronavirus

Tertiary industries (services) took the biggest hit, with transportation, hospitality/food and beverage, and the financial sector all down 3 or more percentage points. Secondary industries, such as industrials and construction, were also hit hard, while primary industries, largely agricultural, were only modestly affected.

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