Spread of COVID-19 has hit global economy

By Sapri Samsuddin

It is undeniable to believe that this virus which originated from central Chinese city of Wuhan has sprung the fears of the economists recently. This outbreak was localised before it becomes globalised very rapidly. Countries such as South Korea, Italy, Iran and Japan have given a serious warning to their citizens pertaining to the COVID-19.

One thing we could notice from this disaster is that many countries will face serious problems with their economy. This is because some factories will postpone production due to this virus. At some point, some companies should prioritise the health of their employees first, otherwise they will incur cost for the insurance once the employees are infected by the coronavirus. 

It can be seen recently that some corporations namely Hyundai Motor Co was suspending its production line as a result of the shortage of parts made in China. Apple company has announced in February that they have to temporarily close their offices and stores in China. Aviation or airline companies too have the adverse effect as well due to some destinations have been forced to cancel.

As we know that the Chines production is one of the key assembly lines of other production, it means, if one part of the assembly is not completed, the entire production will be delayed.

“As the coronavirus spread, a safety-first among nations could lead to a serious stagnation in global activity,” said David Donabedian, chief investment officer at CIBC Private Wealth Management. This indicates that the budget for public health will be allocated more as a result there is a trade-off between economic growth or health of citizens. 

Obviously, when there is a problem in terms of economy of the country, central banks should also account for this problem and inject the money in the circulation to recover the economy. However, some central banks around the world are powerless to mitigate the adverse effect. According to Bank of England’s deputy governor Jon Cunliffe. “If it’s a pure adverse supply shock, there is not much monetary policy can do,” he said. 

A supply shock is when the production of goods is disrupted, such as factories, markets and even shops, are closing down their business. Monetary policy is not able to force them to open. Hence, it is tremendously hard for all the countries to stimulate the economic activity if this COVID-19 cannot be contained.

Looks like that all countries should prepare for this virus in the same way it prepares for the war. ***

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