The Coronavirus disease (COVID-19), which has claimed nearly 3,000 lives just in China, is fast taking the shape of a pandemic. Outside of China, COVID-19 has killed scores of people across Europe, West Asia, and East Asia, in addition to new cases as well as fatalities being reported out of the Americas. Beyond a global health crisis, the outbreak is now expected to heavily dent the world’s largest trading economy (China), in turn hurting the global economy as a whole.
What started as a concern of poor trade just for the Chinese new year holiday season, has now grown to jeopardise global trade and investment activities for a prolonged period. A slowdown in China, the world’s manufacturer with a massive consumer base of its own, has threatened supply-demand disruptions internationally. This has already made the world’s leading markets, and MNCs such as Apple revise down their projections for 2020.
China alone is responsible for 13% of total annual global exports and 11% of imports. While on the merchandise side, it is practically impossible to avoid a China-made product in our daily lives, on the services side, the nation’s contribution to the world has jumped over 1200% over the past two decades. This explains how China’s contribution to the global economy has increased from 4% in 2003 to nearly 20% in 2020 at around $27.3 trillion (PPP).
The $1 trillion impact
The Coronavirus can potentially cost the global economy more than $1 trillion, as per the Oxford Economics. Meanwhile, the International Monetary Fund (IMF) has called it the “most pressing uncertainty” that could endanger a “fragile recovery” from the impact of the recent trade war between the US and China. Additionally, the proximity of the outbreak’s epicentre to the world’s fastest-growing economic region, Asia, has added to the collective anxiety of investors.
With production activities coming to a standstill in China’s biggest manufacturing districts, disruptions in the supply of components, as well as finished products, have pressured industries from electronics to heavy engineering, financial services to logistics and transportation. Meanwhile, thousands of people are looking at income losses as their employers run out of cash. This, along with restrictions on the movement of people, has brought a virtual halt to consumer spending in China.
Nearly all sectors will be affected by a Chinese slowdown – with 4.5% growth expected in Q1 2020, compared with 6% in the previous quarter. The crisis has also brought back to surface the ill effects of excessive centralization of global trade. While China’s vast and cheap manufacturing capacity has attracted international brands from across industries, high dependence has left them deeply vulnerable to operational failures and prolonged income losses as put forward by Coronavirus.
Opportunity for India
India, a rapidly-growing consumer economy, is also overly reliant on China with bilateral trade rising from $3.5 billion in 2000 to reach $87 billion in 2019. With over 80% of the trade made up of import, continuing curbs owing to Coronavirus can impact India’s economy. Additionally, the spread of the disease to Hong Kong and Singapore, two of the world’s most important trading and investment centres, has made matters worse.
There’s no denying that the Coronavirus epidemic is one of the worst that we have witnessed in our lifetime, that said, the world has survived tougher crises. Still, given how closely global economic affairs are connected in the modern age, it will be in the best interest to spread out economic activities among up-and-coming trade centres like India. This offers operational stability, stronger margins, as well as improved access to new markets.
The uncertainty thrown up by COVID-19 is an opportunity for India to showcase its manufacturing prowess, as well as its outreach in international trading. The nation’s 1.3 billion-strong consumption base and its high-quality technology R&D capabilities have already encouraged the world’s biggest brands – from defence to eCommerce – to invest billions. The 21st century is being seen as belonging to India, high time then we stepped up our game.