Coronavirus: Here’s How It’s Impacting the Global Economy
What began in late January 2020 as a regional outbreak has now evolved into a worldwide epidemic. The coronavirus first struck the Wuhan, Hubei province in China—one of the largest manufacturing districts in the country - before quickly spreading to other Chinese provinces and then making its way around the globe.
As of March 3, the coronavirus was named as the cause of death for six people in the state of Washington and 14 other states in the U.S. have reported at least one person with a confirmed case of the virus. The World Health Organization has recognized the coronavirus outbreak as a global health emergency with more than 90,000 confirmed cases across 73 countries and territories. The potential pandemic has unnerved investors—sell-offs have wiped out $6 trillion in value from the global markets in the past six days.
“This virus has pandemic potential,” states Tedros Adhanom Ghebreyesus, the director general of the World Health Organization. “We are actually in a very delicate situation in which the outbreak can go in any direction based on how we handle it.”
China responded quickly by shutting down businesses in an effort to contain the virus, a move that has impacted global manufacturing operations, especially supply chains. Nearly 90% of all active businesses in China are located within the affected provinces. Dun & Bradstreet has indicated that more than 50,000 companies around the world have “Tier 1” suppliers in this region. In addition, 19% of companies with subsidiaries in impacted regions are headquartered in the U.S.
China’s business closures have created ripples of concern throughout global markets. China has reopened some factories (despite public health concerns) in an effort to restart its economy, but manufacturing sites are still running at far lower capacities. Airbus reopened its final assembly line in Tianjin, which it had closed on February 5, reporting that it has been given permission by the Chinese government to “gradually increase production, while implementing all required health and safety measures for Airbus employees.”
With its dependence on China for components, the tech industry is especially skittish. Apple, Under Armour, and an increasing number of other companies have issued earnings warnings for the first quarter; Amazon is stockpiling supplier items from China to protect against future disruptions due to the virus.
Moody’s recently lowered its global growth forecasts by two-tenths of a percentage point, expecting G-20 economies to collectively grow at an annual rate of 2.4% in 2020, with China slipping to 5.2%, down from the previous forecast of 5.8%.
“There is already evidence, albeit anecdotal, that supply chains are being disrupted, including outside China,” states Madhavi Bokil , vice president for Moody’s. “Furthermore, extended lockdowns in China would have a global impact given the country’s importance and interconnectedness in the global economy.”
Key Sectors Impacted
Supply chain disruptions are expected in wholesale trade, shipping, pharmaceutical, automobile, electronics, and other major manufacturing industries. For example, China Association of Automobile Manufacturers (CAAM) reported that auto sales declined by 18% in January.
“The Chinese pharmaceutical industry is also expected to be adversely impacted by the coronavirus on the supply chain side,” states Pharmaceutical Technology. “China accounts for 13% of the active pharmaceutical ingredients manufactured for the U.S. market, according to the FDA, while India accounts for a higher 18%.”
Although all the impacts of the coronavirus outbreak on the global economy have yet to play out, “past pandemics can be used to develop a scenario-driven assessment of economic conditions for the region in the short and medium term, that can be used to assess the level of risk and potential impact to their operations,” writes Dun & Bradstreet. These include:
- Develop a risk-based assessment process that helps identify and continuously monitor a variety of risks that could impact the productivity of supply chains.
- Complete an assessment of suppliers to ensure suppliers’ suppliers are not going to negatively impact the business.
- Monitor the supply chain. Be sure to monitor the risks associated with both Tier 1 and Tier 2 suppliers to ensure the company has a complete view of the supply chain.
- Identify alternative suppliers in non-impacted regions of the world to diversify the supply chain and limit dependencies on any one supplier of geographic region.
For long-term best practices, Dun & Bradstreet advises to “build policies and contingency plans for your supply chain. Identify geographically diverse suppliers to onboard in the event of emergency. Companies should also consider dual sourcing for critical components within their supply chains.”
Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.