Explained: $1 trillion—the global economic cost of coronavirus

Eighty one thousand cases, 2,800 deaths and 44 countries as on Thursday: covid-19 or coronavirus shock is sending chills down spines across the world. While more than 95 per cent of cases and deaths have been reported from China, the flu is conquering more territories—the latest one being Brazil, the first case in Latin America. South Korea, Italy, Iran, Kuwait, Iraq, the US, France, North Macedonia, Lebanon—the coronavirus is spreading its tentacles across all geographies. 

While nations are busy tackling the epidemic, the global economic cost of coronavirus is estimated to be more than $1 trillion, according to Oxford Economics. That's the price for workplace absenteeism, lower productivity, sliding travel, disrupted supply chains and reduced trade and investment, resulting from the healthcare crisis. The cost is likely to swell if it hits the most awaited event of the year—Olympics. While the International Olympic Committee is still hopeful of flagging off the event as scheduled on July 24, the virus scare has definitely proved to be a threat for the smooth conduct of the sporting event. The economic and logistic cost of a delay or postponement of Olympics will send ripples across the world economies. However, considering Tokya is the host this year and China has been the worst affected, the impact will be more pronounced in Asian economies. 

Covid-19 spares none

The fact that the world's manufacturing hubs in Asia have become the epicentre of the epidemic has worsened the impact. In fact, as per latest media reports, China is struggling to reopen factories that make world’s smartphones, toys and other goods. Analysts and economists warn that it might be months before production capacity hits normal in China. 

As a result, businesses across the board have been or are already reeling under the coronavirus impact. From Apple to Microsoft to Samsung, the number of business giants cautioning against the economic impact are increasing by the day. 

READ: How will China's coronavirus shutdown affect Indian economy?

On Wednesday, Apple CEO Tim Cook said covid-19 was a "challenge". The same day, Microsoft lowered its revenue estimates for the current quarter, saying it will feel the impact of the coronavirus epidemic with lower sales of Windows software and Surface devices. "Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated," Microsoft said in a statement. As a result, Microsoft said that in the current fiscal quarter its revenues will fall short of earlier forecasts, with Windows and Surface "more negatively impacted than previously anticipated." 

In fact, Apple was one of the first companies to cut sales expectations for the current quarter, which a month ago it had projected to be robust. 

With South Korea having the most number of coronavirus positive cases outside China, the country's most important company, Samsung, was forced to pause production at its Gumi plant after a single worker tested positive for the virus, reported the Financial Times. Further disruption of services can prove detrimental for Samsung, and in turn, South Korean, whose economy is closely tied to that of the electronics giant. 

Companies across the world are taking preventive steps to combat the disease. Swiss food giant Nestle, owner of KitKat and Nespresso, has postponed all business trips until March 15 at the earliest taking into consideration the safety of its employees. "We have asked all of our employees worldwide not to travel for business purposes until March 15, 2020. We will review this measure in light of external developments," a company spokesman told AFP. 

German airline Lufthansa said it would freeze new hires and use unpaid leave and additional short-time work to cut costs to help cushion the economic impact of the novel coronavirus. Employees would be offered unpaid leave and more part-time work and the group would also seek to cut administrative costs, it said. The Frankfurt-based group said 13 of its aircraft were grounded, after it cancelled all flights to and from mainland China by its flagship airline, as well as Austrian and Swiss until March 28.

Bleeding markets 

According to analysts, intense spread of coronavirus is pushing investors away. There is sharp foreign fund outflow led by strong dollar index, as investors reduce their exposure to emerging markets amid global uncertainty.

Wall Street has been witnessing heavy selling where all three main indices lost around three percent after officials said covid-19 would likely take hold in the United States. With cases being reported in more countries—and lockdowns in nations including Austria, Italy and Spain—traders are growing increasingly fearful about the impact on the global economy. "Markets continue to retreat as the coronavirus dominates headlines," said IG trading group analyst Chris Beauchamp.

"There is no question financial markets are coming round to the realisation that this particular crisis is likely to have a slightly longer shelf life than many thought was the case a couple of weeks ago," said CMC Markets UK analyst Michael Hewson in a note.

The IMF currently reckons the virus will only force it to knock 0.1 percentage point off its 3.3 per cent global growth forecast for 2020, IMF chief economist Gita Gopinath said in an interview that a pandemic declaration would risk “really downside, dire scenarios”. 

With the outbreak showing little sign of easing, investors are increasingly concerned it could have a much longer-term impact on the world economy. However, economists say it is too soon to calculate. The International Monetary Fund has said the best case would be for a short, sharp decline in growth in China, followed by an equally sharp recovery.

India impact

With several big names hit, investors are growing increasingly fearful about the economic impact. As a result, its bloodbath in markets across the world, including India. Indian markets have been in the red in the last four sessions with investors losing around Rs 5.49 lakh crore during the past four sessions.  

Market benchmark Sensex dropped over 200 points in opening session on Thursday as incessant foreign fund outflow and coronavirus overhang weighed on global investor sentiment. 

Since the outbreak of the epidemic, crude prices have plunged over $15 a barrel to around $50 now as large parts of China, the largest importer and consumer of crude, are under Beijing-ordered lockdown and millions of factories are closed. Oil prices, which tanked around 3.8 percent, were also slightly higher, though concern about the impact on demand for the commodity in China—the world's top crude consumer—was keeping gains subdued.

Air-conditioner maker Blue Star expects disruption in supply chain for components in mid April. "Every industry player is somewhere or the other connected to China for supply of equipment. Particularly electronic component from China. The good news is we will not have problem. But, there could be supply chain disruption in mid-April. We are monitoring...," said Blue Star Ltd Managing Director, B. Thiagarajan.

The automobiles sector, already facing one of the worst slowdown in two decades, is going to be the one of the first to be impacted in India and across the world. TVS Motors recently said some of its tier II suppliers have been impacted adversely, which will lead to 10 per cent drop in the planned production in February 2020. The Moody's Investors Service also lowered its global sales forecast as the coronavirus outbreak reduces demand and disrupts automotive supply chains.