Coronavirus hits global economy as fears grow that impact on China's markets will have ripple effect; Asia stocks, tourism worst-affected

Just as the outlook for the global economy had begun to brighten up in recent months, a new threat has suddenly emerged in the form of the viral outbreak in China’s Wuhan. The deadly virus, which many fear is taking the shape of a global epidemic, has killed 213  people so far and spread to at least 22 countries, with 9,692 confirmed cases. However, the direct human cost of the epidemic aside, it couldn’t have come at a worse time. The world’s second largest economy, China, was decelerating even before the coronavirus hit. And the world’s No 7 economy, India, was also coping with an unexpectedly sharp slowdown, which prompted the International Monetary Fund last week to downgrade its outlook for global growth this year. Asian stocks and currencies fell as the death toll rose and more cases were reported with fears growing that the hit to China’s economy will ripple around the world in coming months. India became the latest country to report a case — a student of Wuhan University — while anger and fear brought protests in South Korea and threats of strikes in Hong Kong. “Markets will remain highly volatile as long as they feel that they only have an incomplete picture of what is going on, and what is going to happen next,” said Agathe Demarais, global forecasting director at the Economist Intelligence Unit told Reuters.  What happens in China means a lot more to the world economy than it did when the SARS outbreak struck nearly two decades ago. In 2003, China accounted for 4.3 percent of world economic output. Last year, it accounted for 16.3 percent, according to the International Monetary Fund. A government economist said that the first-quarter growth could fall by one point to five percent or lower due to the epidemic,  Reuters reported. [caption id=“attachment_7981401” align=“alignnone” width=“825”] China broadened its unprecedented, open-ended lockdowns to encompass around 25 million people Friday to try to contain a deadly new virus that has sickened hundreds, though the measures’ potential for success is uncertain. AP[/caption] In a sign of alarm over possible damage, Bank of Japan deputy governor Masayoshi Amamiya said China’s huge presence in the world economy must be taken into account in gauging the impact the outbreak could have on global growth. Alphabet Inc’s Google and Sweden’s IKEA joined other major firms in closing operations in China. Concern is also growing that thousands of Chinese factory workers on Lunar New Year holidays may struggle to get back to work next week, due to extensive travel restrictions imposed to stop the spread of the virus. South Korea’s Samsung Electronics Co Ltd said it had extended the holiday closure for some Chinese production facilities. Tourism slumps across Asia Businesses around the world that have grown increasingly reliant on big-spending tourists from China are taking a heavy hit, with tens of millions of Chinese residents restricted from leaving their country as the coronavirus spreads. Hotels, airlines, casinos and cruise operators were among the industries suffering the most immediate repercussions, especially with the outbreak occurring during the Lunar New Year, one of the biggest travel season in Asia. Tourism from China was already down before the virus hit due in part to the Hong Kong protests and the trade dispute between Beijing and Washington. But about 134 million Chinese travelled abroad in 2019, up 4.5 percent from a year earlier, according to official figures. Before the outbreak, the China Outbound Tourism Research Institute predicted some 7 million Chinese would travel abroad for the Lunar New Year this year, up from 6.3 million in 2019. Hong Hong, Thailand, Japan and Vietnam were top destinations, but Chinese tourists are big spenders in cities like London, Milan, Paris and New York. Economist and tourism industry officials said the biggest threat so far is to China’s closest neighbors, with the US and Europe likely to face major repercussions only if the coronavirus outbreak proves long-lived. [caption id=“attachment_7981421” align=“alignnone” width=“825”] Tourism Council of Thailand said Tuesday that new coronavirus outbreak estimated to cost 50 billion Bhat (1,613,892 USD) in lost tourism income for Thailand’s economy due to China’s blanket ban on tourists leaving its affected cities. AP[/caption] In Thailand, a favorite destination for Lunar New Year travel, officials estimate potential lost revenue at 50 billion baht ($1.6 billion). Many drugstores in Bangkok ran out of surgical masks and the number of Chinese tourists appeared to be much smaller than usual for the Lunar New Year. The government announced it was handing out masks, and that the airport rail link would be disinfected. A spillover is also likely in Vietnam, Singapore and the Philippines, Tommy Wu and Priyanka Kishore, of Oxford Economics told The Associated Press. Hong Kong is especially vulnerable because its economy and its appeal to tourists have already been weakened by months of sometimes-violent political protest. By November, inbound tourism to Hong Kong was already down 56 percent from a year earlier, reported SCMP Visitors from mainland China to the autonomous Chinese gambling capital of Macau was down 80 percent on Sunday from a year earlier, a threat to a regional government that depends on gaming revenue. Oil prices dip Oil prices slumped to three-month lows this week in response to the widening spread of the virus in China, the world’s top oil importer, prompting OPEC to look to extend current oil output cuts until at least June from March, as well as consider deeper cuts if oil demand is badly hit. China is the second-largest oil refiner and a critical growth engine for the global economy, so any material contraction in Chinese economic activity is expected to have far-reaching repercussions across several industries. The aviation sector was a high-profile coronavirus casualty, with scores of flights to and from China cancelled this week. [caption id=“attachment_7981391” align=“alignnone” width=“825”] The pilots’ union at American Airlines filed a lawsuit Thursday to block the carrier from flying to China and told members not to operate flights there because of the spreading coronavirus outbreak. AP Photo/Ross D. Franklin, File)[/caption] Jet fuel prices and production margins in Asia slumped in response, hurting refiners and fuel exporters.. Greatly reduced mobility within China also hit gasoline demand, with Asia’s benchmark gasoline price falling the most in four years on Tuesday. Commodities market takes a hit The coronavirus has also roiled global commodity markets, raising fears of weaker demand and disrupting raw material supply chains in China. [caption id=“attachment_7981471” align=“alignnone” width=“825”] Shares have fallen sharply in Asia on Thursday as concern over the impact of the virus outbreak in China deepens. AP[/caption] Palm oil prices slumped as much as 10 percent on Tuesday as traders reacted to the widening shutdowns of offices, malls and factories within China. Palm oil is used mainly in food courts and by catering companies in China, the second-largest palm importer behind India. Base metals have also taken a hit as manufacturing plants and factories take protracted Lunar New Year breaks while they assess the fallout from the virus. Toyota Motor Corp and other firms announced extended plant shutdowns. Industrial bellwether copper fell to near a fourth-month on Thursday and was set for an 11th straight session of losses on fears of an economic slowdown in the world’s top metals consumer. Commodities futures exchanges have also remained shut longer than planned due to the virus, with the Shanghai Futures Exchange (ShFE) and Dalian Commodity Exchange (DCE) announcing extended closures. Safe haven gold has won some support during a time of uncertainty, hitting a three-week high early in the week, and analysts expect the precious metal to remain bid while worries about the virus persist.

 With inputs from agencies