Economic Damage from Coronavirus- Report

With a bad memory left for the economy after the SARS virus spread 20 years ago, growing fears arise as new cases of the coronavirus are detected every day.

Investors' concern is evident in the possibility of issuing travel warnings as the virus spreads, hurting the global economy.

Corona viruses are transmitted between animals and people and can develop into strains not previously identified in humans.

Amid several measures taken to tackle the virus, China suspended most public transportation in Huanggang, encouraging people not to leave the city. The city that is considered the epicenter of the "Corona" outbreak that killed 26 people and infected more than 630 cases, according to official television in China.

Authorities fear an acceleration of the infection rate as hundreds of millions of Chinese travel home and abroad during the week-long holidays of the new lunar year that began on Saturday.

In contrast to its secret handling of severe acute respiratory syndrome (SARS) in 2002/2003 that claimed about 800 lives, the Chinese government provides regular updates to avoid panic before holidays.

Despite China’s response, global markets have suffered losses since the beginning of this week, with declining appetite for risk among investors in light of the ever-increasing number of casualties and deaths.

"Ultimately, the coronavirus is a slow-moving but important story for markets as it is likely to last for several months instead of just a few days," says Ned Rumpeltin, head of European currency strategy at TD Securities.

It is difficult to determine the economic impact of such viruses, but the International Air Transport Association's estimate in 2006 estimated that SARS had reduced China's GDP in 2003 by about 1 percent.

The spread of the "Corona" virus is the last thing the Chinese economy wants to see with the fact that it is still suffering from a slowdown in growth to the lowest level in 3 decades due to trade tensions.

"This time, the blow to Chinese GDP may be worse, because the worst affected sectors now constitute a greater part of the economy, for example, tourism accounts for about 5% of output, compared to 2% in 2003, " wrote Hao Zhu, an analyst at a major Chinese Bank.

Of course, the risky asset losses were led by Chinese stocks, which witnessed the largest decline in more than eight months this week, bringing the decline to 3.3%.

The Chinese yuan also fell against the dollar to its lowest level in two weeks.

The major global stock exchanges were not safe from the losses, as European stocks lost their record levels with losses exceeding 1% since the beginning of the week. US stocks also abandoned their historical levels, yet, the least affected.

[caption id="attachment_105940" align="aligncenter" width="2048"] Empty Chinese subway amid service suspending[/caption]

The oil market caught a train of losses with expectations by "Goldman Sachs" that the virus may push crude prices down by about $3.

"We estimate a price shock of up to $5 if the crisis evolves into a SARS-style epidemic on the basis of historical oil price movements," according to a Commodity Research Center.

These expectations seem to have been partially fulfilled, as oil prices fell to their lowest level in 7 weeks with the fact that the price of "Brent" crude that ended last week's sessions near the level of $ 65 stands barely now at the level of $ 62 a barrel.

While the the financial services company (ING) believes that the risks of declining demand caused by the virus mark a growing concern for the market, with the possibility that any restrictions on travel may affect the demand for fuel, business, and tourism.

Yet, concerns about the virus was not the only cause of oil price losses as the International Energy Agency (IEA) expected a surplus of about one million barrels per day in the crude market during the first half of this year.

Although it is rising in times of uncertainty, gold prices have not witnessed a major change since the beginning of the week, with the fact that China has taken and is still taking many preventive measures to confront "Corona".

But with signs of the virus spreading amid the increasing number of infected people and deaths, investors today resorted to sheltering in the yellow metal to witness noticeable gains at the end of the week.

In conclusion, as the virus is spreading, global markets are pushed into a downward trend, as many international companies from the US, France and others are calling their officials and employees out of China. Also, a suspension of public transportation, Cafes, cinemas, and theaters, in some Chinese cities will definitely reduce production and thus GDP, adding to that the travel ban to and from China to prevent the spread of the deadly virus.