The novel coronavirus (COVID-19) is believed to have emerged in December 2019 in Wuhan, China from illegally traded wildlife at an animal market. Coronaviruses are a group of viruses that cause diseases in mammals and birds. In humans, the viruses cause respiratory infections.
On January 13, the first known international case outside of China was reported in Thailand—raising the alarm for the potential risk of infected travelers and spreading the virus beyond its epicenter. Travelers have now spread the disease to over 30 countries, with approximately 80,000 cases reported globally and 2600 fatalities, mostly among the sick, elderly and hospital workers.
Alongside the frightening human-interest stories that have emerged—including the drama aboard ill-fated cruise ships, The Diamond Princess, in Japan and Holland America’s MS Westerdam, in Cambodia—come concerns about the global economy. Indeed, COVID-19 is already having a significant impact in numerous key sectors including trade, petrochemical, life sciences/pharmaceutical, aviation, banking, travel, consumer behaviors and sports.
China makes and sells more manufacturing goods than any other country on the planet, ranging from iron and steel to ships and aircraft. China is also a world leader in many types of goods; for example, China manufactures more than 45 times as many personal computers per person than the rest of the world combined. China is the world’s largest consumer of many commodities and also serves as the hub of global supply chains for many products ranging from car components to computer chips, to the ubiquitous Apple products.
As the COVID-19 crisis intensifies and China continues to implement widespread transportation bans that affect the movement of people, goods and commodities, industry leaders are feeling the hit.
- Apple Inc. became the first major U.S. company to announce that it will likely miss revenue forecasts for the current quarter as a result of the coronavirus.
- Volkswagen announced that it would postpone production restarts at some Chinese plants, while Fiat Chrysler Automobiles NV said it had halted production in Serbia because it couldn’t get parts from China.
- Airbus SE shut down a factory in China that accounts for nearly 10% of its production, while Hyundai Motor Co. said that it was slowing production in seven plants in South Korea due to lack of parts from suppliers in China.
- High-end retailers in major fashion centers like New York, Paris and Milan have reported a dearth of Chinese shoppers who normally frequent the luxury stores in these major fashion cities.
Distress within the Chinese economy could spill over to the U.S. and global markets due to a decrease in risk “appetite” and a decline in trade and commodity prices. If history is of any solace, stocks that have previously taken a short-term dive from disease-related concerns (SARS, MERS, swine flu, Ebola and Zika to name a few) have tended to bounce back after a few months. It has been rare, or even unheard of, for a disease to bring global spending to a stand-still.
That being said, COVID-19 is highly contagious and is spreading at a quicker rate than anticipated. Accordingly, economists vary on what they believe the actual effect on the global economy may be. J.P. Morgan economists initially projected a reduced annual global gross domestic product by 0.3%, but now state that the effect will be larger. UBS economists expect the outbreak to diminish global growth by 2.5%.
One research group, Coresight Research, recently stated that “[i]f factories can’t attain full capacity by mid-April, we expect the ripple effect will lead to supply chain breakdowns around the world.” As of February 24, global stocks and oil prices were still tumbling amid fresh reports of outbreaks in several countries outside of China, including South Korea and Italy.
In the meantime, CONEXPO-CON/AGG, North America’s largest construction trade show representing asphalt, aggregates, concrete, earthmoving, lifting, mining, utilities and more, is scheduled for March 10-14 in Las Vegas. As of now, the expo is still on the calendar and expected to attract a global audience of approximately 120,000. Event organizers have issued a statement indicating that they are closely monitoring the coronavirus crisis and will be following any guidelines recommended by the CDC.