If the deaths caused by the recent COVID-19 outbreak aren’t already enough, there are escalating fears that this will also drive economies to recession.

Why would this happen? Simply put, the outbreak involves one of the most powerful economies: China. Such a central figure in terms of sheer power can easily drag down other economies that depend on it.

Epicenter

While there are no exact figures just yet, the COVID 2019 outbreak has clearly affected a considerable amount of people. Last week, 15,000 new cases were recorded in just a single day: February 12. Each day, new cases are being reported.

The Conversation said that as early as now, the outbreak has taken a massive toll on the economy of China. The public transport sector observed a 40 percentage-point decrease from the 2019 levels.  Chinese tourism, retail, and catering all also suffered during the Chinese New Year season.

On top of all these is the shock inflicted on China’s manufacturing sector, which covers about a third of the country’s economy.

Chain reaction

To make matters worse, this slump in China’s economy has begun disrupting the global supply chain. For a lot of economies, China is not only a critical market but also an important part in the operation of their key industries.

Germany’s economy, for instance, is heavily driven by its vehicle industry. A lot of the German automakers have factories in China. With some components of their cars being made in China, a continued outbreak might end up completely paralyzing global assembly lines. At the same time, China is also one of the largest markets for their products.

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Some economic troubles will not be caused by dependency on China. Take for example Singapore which is also affected by the COVID 2019 outbreak. As the number of confirmed cases continues to rise, tourist arrivals in the country are also observed to be steadily declining.

Compounding effects

This on-going disease outbreak has definitely increased the volatility of the market.  However, we should note that even prior to the outbreak, the market is already volatile due to the trade tensions between China and the United States.

While there is a temporary truce between the two countries so that the coronavirus outbreak can be addressed more efficiently, the tension hasn’t died down at all.

Just last week, the US charged the Chinese tech company Huawei with racketeering, the theft of trade secrets, and intellectual property theft. It’s been more than a year now since the standoff between the US and Huawei started. It seems like the US has no intention of backing down even with a disease outbreak in the picture.

We can see that this disease outbreak has only added fuel to what is already a wildfire. The compounding effects of these factors definitely has made it difficult to predict what will happen next. With so much at stake, leaders should be preparing for the worst case, building up the resilience of nations as quick as possible.

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