Economic impact of Wuhan Coronavirus

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LONDON, England – Using the SARS episode as a benchmark, the impact on Chinese GDP and industrial production could be as large as one percent, but that estimate comes with a large margin of error at this early stage, as we are still learning about the virus.

The impact on global commodity prices was virtually zero during the SARS epidemic, but the commodity price and demand impact is likely to be much larger now, given that China consumes around half of the world’s commodities today.

The first outbreak of the 2019-nCov was in Wuhan, in mid-December. The virus is a member of the family of coronaviruses and is 75-80 percent identical to the SARS virus, which the World Health Organisation (WHO) dates to have started in November 2002 and continued into late 2003. In only ten days from January 16, the number of infected people in China went from 45 to almost 3,000. On Tuesday January 28 the death toll reached 106, with confirmed cases reported in 12 other countries (including Hong Kong, USA, Japan, France and Singapore). But the silver lining, according to the Chinese National Health Commission, is that 51 people have recovered from the virus, and therefore have been discharged from hospital.

More than 60 million people in 15 cities in China have been fully or partially locked down since the virus outbreak. On top of this, the Chinese government has extended the Chinese New Year public holidays, to delay the mass migration of people back to work.

In terms of geography, Wuhan is the capital of Hubei province with 60 million people. Its central location and proximity to the Yangtze River means it’s an important logistical hub for China. It is also an industrial centre and home to the second-largest automaker – DFAC – with whom foreign automakers including Nissan, Honda and Renault have joint ventures.

A virus outbreak is a rare occurrence. Economists refer to it as a ‘black swan’ event. It is hard to predict the economic impact of rare events, particularly when the story is still unfolding. We can size the potential impact of this virus, by looking at previous outbreaks. The most obvious reference point being the Severe Acute Respiratory Syndrome (SARS) outbreak in China. The start of the outbreak is dated as November 2002 by the WHO, it continued well into 2003.

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