IASbaba's Flagship Course: Integrated Learning Programme (ILP) - 2024 Read Details
Topic: General Studies 2:
- Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
- Issues relating to development and management of Social Sector/Services relating to Health.
In News: Nearly two decades have passed since a coronavirus known as SARS emerged in China, killing hundreds of people and sparking panic that sent a chill through the global economy. The virus now rampaging across China could be much more damaging. The human cost of the coronavirus outbreak is climbing across China and beyond. The economic cost is also mounting. That damage is, for the most part, not due to the virus itself, but due to efforts to prevent it from spreading.
China has become an indispensable part of global business since the 2003 SARS outbreak. It's grown into the world's factory, churning out products such as the iPhone and driving demand for commodities like oil and copper. The country also boasts hundreds of millions of wealthy consumers who spend big on luxury products, tourism and cars. China's economy accounted for roughly 4% of world GDP in 2003; it now makes up 16% of global output.
SARS sickened 8,098 people and killed 774 before it was contained. The new coronavirus, which originated in the central Chinese city of Wuhan, has already killed more than 900 people and infected over 40,000 across at least 25 countries and territories. Chinese officials have locked down Wuhan and several other cities, but the virus continues to spread.
Why is China so important to the global economy?
China’s extraordinary economic surge over the past 40 years has resulted in it becoming the world’s second biggest economy, with a GDP of $13.6tn (£10.4tn) (compared with $20.5tn for the US). Annualised growth of 7% and more – way beyond the capacity of developed economies – has become the norm.
[caption id="attachment_57340" align="aligncenter" width="624"] Coronavirus & Impact on Economy – The Big Picture – RSTV IAS UPSC[/caption]China reached this position by supplanting the US as the fulcrum of global trade. Beijing is the largest trader of merchandise in the world, and is fast catching the US in commercial services following an 18% growth spurt in 2018. The long-held practice of sourcing components and widgets from Chinese companies, and the country’s vast and growing domestic market, has encouraged thousands of foreign businesses to open their own factories on the mainland, join local distribution networks and open shops.
China is also central to a diverse range of global supply chains: much of the world’s raw materials travel to China before being turned into a manufactured product. Last year’s battle with the US over import tariffs on billions of dollars’ worth of goods illustrated the power of the Chinese economy to disrupt and disturb the global outlook.
What is happening?
Transportation
Supply Chain
Global condition
Currencies of countries that export these goods at high rates, including Brazil, South Africa and Australia, are near their lowest levels in recent memory.
Economists say the current level of disruption is manageable. If the number of new coronavirus cases begins to slow, and China's factories reopen soon, the result will be a fleeting hit to the Chinese economy in the first quarter and a dent in global growth. If the virus continues to spread, however, the economic damage will increase rapidly.
[caption id="attachment_57339" align="aligncenter" width="547"] Coronavirus & Impact on Economy – The Big Picture – RSTV IAS UPSC[/caption]Epidemic risk
Economists have a hard time working out the potential costs of epidemics because of their unique characteristics. Yet diseases can be far more damaging than natural disasters such as hurricanes or a tsunami, or other unpredictable events known as "black swans."
According to a study by the World Bank, a severe pandemic could cause economic losses equal to nearly 5% of global GDP, or more than $3 trillion. Losses from a weaker flu pandemic, such as the 2009 H1N1 virus, can still wipe 0.5% off global GDP.
The virus is not the driving factor behind those losses, however. Instead, it's the way consumers, businesses and governments respond to an outbreak that matters most. People are more likely to stay home during an outbreak to avoid getting sick, preventing them from traveling, shopping and working. Doing so limits demand for consumer goods and energy. Decisions by companies and governments to close shops and idle factories, meanwhile, curtail production.
Is there a way ahead?
Analysts at Capital Economics expect the government to announce additional measures in the coming days. If the virus keeps spreading, they believe that Beijing will have to abandon its long-running efforts to get its debt under control and pump money directly into the economy.
Note:
Pangolins be the source of novel coronavirus
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