The UN has estimated global economic losses could reach up to $2 trillion. Image: REUTERS/Kai Pfaffenbach
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- China's business and economic activity slowed dramatically as the novel COVID-19 coronavirus spread.
- It's thought the effects on the country's economy could foreshadow what the rest of the world can expect.
- The UN has estimated global economic losses could reach up to $2 trillion.
The economic impact of COVID-19
China, once the epicenter of the COVID-19 pandemic, appears to be turning a corner. As the number of reported local transmission cases hovers near zero, daily life is slowly returning to normal. However, economic data from the first two months of the year shows the damage done to the country’s finances.
Today’s visualization outlines the sharp losses China’s economy has experienced, and how this may foreshadow what’s to come for countries currently in the early stages of the outbreak.
A historic slump
The results are in: China’s business activity slowed considerably as COVID-19 spread.
As factories and shops reopen, China seems to be over the initial supply side shock caused by the lockdown. However, the country now faces a double-headed demand shock:
Domestic demand is slow to gain traction due to psychological scars, bankruptcies, and job losses. In a survey conducted by a Beijing financial firm, almost 65%of respondents plan to “restrain” their spending habits after the virus.Overseas demand is suffering as more countries face outbreaks. Many stores are closing up shop and/or cancelling orders, leading to an oversupply of goods.
With a fast recovery seeming highly unlikely, many economists expect China’s GDP to shrink in the first quarter of 2020—the country’s first decline since 1976.
Danger on the Horizon
Are other countries destined to follow the same path? Based on preliminary economic data, it would appear so.
About half the U.S. population is on stay-at-home orders, severely restricting economic activity and forcing widespread layoffs. In the week ending March 21, total unemployment insurance claims rose to almost 3.3 million—their highest level in recorded history. For context, weekly claims reached a high of 665,000 during the global financial crisis.
“…The economy has just fallen over the cliff and is turning down into a recession.””
In addition, manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware dropped to its lowest level since July 2012.
Other countries are also feeling the economic impact of COVID-19. For example, global online bookings for seated diners have declined by 100% year-over-year. In Canada, nearly one million people have applied for unemployment benefits.
Hard-hit countries such as Italy and Spain, which already suffer from high unemployment, are also expecting to see economic blows. However, it’s too soon to gauge the extent of the damage.
Light at the end of the tunnel
Given the near-shutdown of many economies, the IMF is forecasting a global recession in 2020. Separately, the UN estimates COVID-19 could cause up to a $2 trillion shortfall in global income.
On the bright side, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence, and the number of COVID-19 cases, will play into this timeline.
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The views expressed in this article are those of the author alone and not the World Economic Forum.
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