Can the epidemic cause a global economic crisis?

• The Chinese stock markets in Shanghai and Shenzhen saw their prices fall by more than 8% on Monday.
• The first countries affected by the crisis are especially those which, in Asia or Latin America, depend the most on the Chinese economy.
• A decline in Chinese growth is already expected in 2020.

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To the health panic is added that of the markets. The coronavirus epidemic, whose toll stands at 362 dead and more than 17,000 contaminations, wins the scholarships. This Monday,
those in Shanghai and Shenzhen plunged more than 8%. A record drop since 2015 and whose repercussions question.

Chinese consumption stopped

Since the identification of this new virus in December, Chinese authorities have reacted. An industrial metropolis and epicenter of the epidemic, the city of Wuhan was cut off from the world, and with it, the surrounding province of Hubei, then the city of Wenzhou. The possibilities to travel within China are limited. Organized trips both inside and outside the country have been canceled. To prevent the spread of the epidemic, shops and restaurant chains are closing. In particular, the major Western brands established in China, such as Apple stores, Starbucks cafes or Ikea stores.

These are all factors that are straining the Chinese economy. Besides the fact that part of the Chinese workforce finds themselves unemployed, the Chinese are reluctant to consume. A major shortfall for economic players, especially since the epidemic also falls at the worst time, that of the Chinese New Year festivities.

These major disturbances were directly reflected in large stock market dropouts of Chinese stocks: – 30% since mid-January for Wanda Cinemas, a Chinese cinema operator, reports the news agency Bloomberg. Apple’s contractor Foxconn, which is listed on the Shanghai Stock Exchange, also fell 10 percent, AFP said. Unlike the more stable American or European stock markets, the price falls were spectacular within the Middle Empire. “Chinese stock markets are still in the development phase and they tend to over react to events,” said Michel Fouquin, scientific advisor to Cepii and specialist in the Asian economy.

Weakened business partners

Already affecting the Chinese economy, the world’s leading importing and exporting country, coronavirus is affecting many countries in turn. “If we look at all the previous epidemics, such as SARS in April 2003 and H1N1 in April 2009, raw materials are the assets that suffer the biggest decreases each time, because China is the biggest consumer . When China slows down, Chinese demand for these resources declines, “explains Arthur Juris, chief economist of the private bank Landolt & Cie and member of the think tank BSI Economics. This is already the case for petroleum and copper, whose prices on the world market have fallen due to the coronavirus.

This decline in Chinese activity “will primarily affect countries that export a lot of goods and services”, such as Taiwan, Hong Kong and Thailand, continues Arthur Juris. But also those whose incomes depend on the price of the raw materials they export, such as Australia, Brazil or Chile. “It is mainly these countries that are under the current stress because their economies are very dependent on China,” said the economist. On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) and its Russian ally announced a technical meeting on Tuesday and Wednesday in Vienna to analyze the drop in crude oil prices linked to the new coronavirus epidemic.

Beyond the countries, the most exposed economic sectors are the automobile, luxury and transport, summarizes Michel Fouquin, of Cepii. In the United States, shares of Exxon, Mobil and Chevron fell 4% last Friday. By blocking Chinese people at home – the source of 150 million foreign trips in 2018 according to the World Tourism Organization – the coronavirus is hitting the tourism industry hard. And behind it, too, the consumer goods much sought after by the Chinese, such as, for example, luxury products coming in particular from major French brands.

Chinese growth already downgraded

It is still too early to tell. It depends, in particular, on whether or not the epidemic is under control. “It is not impossible that there is still a progression of the virus, given the incubation times,” said Michel Fourquin, recalling that the SARS epidemic in 2002-2003 had lasted six months.

“In the long term, commodity prices should rebound, helped by the recovery in demand and production. The whole question is whether activity will resume in the second quarter or if it will take longer to delay, “said Arthur Juris, on the stock markets. The wealth produced by China will in any case be affected by the coronavirus. Due to the epidemic, the economist is already anticipating GDP down 0.3 point of GDP, to 5.7% in 2020, against the 6% initially expected. Bank Natixis also forecasts a drop of the same magnitude, but to 5.5%. What more weigh down on the economic results of China, whose growth rate is drying up from year to year.