The economics of the 2019-nCoV

By BusinessMirror Editorial, 3 Feb 2020

The human loss is a tragedy; the economic consequences are going to be disastrous. Everyone is an expert with 20/20 hindsight. Nonetheless, some of us need to start thinking about what the future may look like.

At this point—with the first fatality outside of China happening in the Philippines—we do know a couple of important factors about the 2019-nCoV. The number of persons in China with the disease is off the charts in comparison to the 2002/2003 SARS, and that is assuming government figures are reliable and accurate.

The second is that the mortality rate of 2019-nCoV is much lower than with SARS. That is good news but if the virus continues to mutate, anything is possible, and that is not a good scenario.

Some local pundits are saying that we should not panic. Except, what is the proper definition of panic? Further, if the trend of global infections continues at the current pace, we hope these same people will advise us when it is time to panic.

For example, we have been told that it is not imperative to wear a face mask as there are other more important preventive measures that we should take. However, we like the idea of seeing many people wearing a simple surgical mask—when available—because it is a great public reminder to wash your hands, use hand alcohol, and not to cough or sneeze into another person’s face.

The economic effects are already getting as serious as the health consequences. Wuhan is one of China’s largest manufacturing centers. More than 300 of the Global Top 500 companies have a presence there. Wuhan has 10 car factories, including Honda, Renault and General Motors. Countless retail companies in China and Hong Kong are closing, or at least minimizing their operations.

Tourism in Asia is going to be like a ghost town as few airlines are still flying in and out of China, including Cebu Pacific and AirAsia. Flights to and from Hong Kong and Macau may continue, but with the travel ban those flights may be empty.

During SARS, tourists from China to the rest of Asia fell 30 percent. But since then the number of outbound Chinese tourists has increased tenfold. China is Thailand’s No. 1 market, generating nearly 30 percent of all arrivals. In 2019, this totaled 11 million Chinese tourists, more than the 10.6 million Thailand received from all Asean neighbors combined. Thailand estimates it has already lost $1.6 billion in tourism receipts.

India is concerned about its large smartphone manufacturing industry. India is the world’s second-largest smartphone maker, but is dependent on China for parts supplies. For both tourism and the global supply chain, the duration of the problem is critical. Here is a benchmark: “If the problem persists beyond February 10, 2020, then we have a real problem,” said the India Cellular & Electronics Association.

Local economists are already crunching the numbers in part based on the 0.5-percent drop for all Asean economies during the seven months of SARS. UnionBank’s economic research says look for a GDP decline of about 0.5 percent if the nCoV outbreak lasts six months.

A 2004 analysis determined that the SARS crisis cost the world economy about $40 billion. For the nCoV outbreak, the estimate is that it is going to cost China alone $60 billion in the first quarter.