HOW THE CORONAVIRUS OUTBREAK COULD SERIOUSLY IMPACT THE GLOBAL ECONOMY
It’s impossible to forecast how long the Coronavirus outbreak will last, how far it will spread, or the extent of which it will disrupt the global economy. Some of the world’s biggest brands rely on Chinese factories for production, and many also depend on the revenue derived from Chinese consumers. Global businesses, distributors and manufacturers are all feeling the major uncertainty that the Coronavirus brings to the table.
In recent years, China has taken the world market by storm. With over 1.4 billion consumers eager to spend their increasing disposable income, China is a major target for companies focused on global expansion. In the face of the Coronavirus, the Chinese Government and some of the world’s leading retailers are encouraging consumers to stay home and avoid unnecessary travel.
BRANDS ARE TAKING IMMEDIATE ACTION
Household name brands are responding to the outbreak by restricting employee travel and/or temporarily shutting down locations/offices. Tesla has been forced to temporarily close its new Shanghai-built factory. Facebook has halted all non-essential travel to the country. Starbucks has temporarily closed more than half its stores in mainland China, and CEO Kevin Johnson announced that “the dynamic situation unfolding with the Coronavirus” has already seriously impacted the company’s financial forecast for 2020.
Similarly, Apple relies heavily on both Chinese consumers and manufacturers, so any extended disruption to the Chinese economy could seriously disrupt both sales and production. The short-term impact of the Coronavirus can be felt across all Chinese-reliant companies, however, the long-term impact is still unclear.
GLOBAL SUPPLY CHAIN BRACING FOR A HIT
Chinese factories are an essential part of the global supply chain, producing everything from low-value plastic goods to complex smartphones. The timing of the epidemic couldn’t be worse - as businesses across the globe are feeling the strain post-Chinese New Year, and many major industrial areas have lengthened the holiday by at least another week. This delay has the potential to disrupt global supply chains and encourage more businesses to shift production away from China, a trend that originally began as a way to avoid American tariffs.
Due to foreign tensions between the United States and China in late-2019, many companies have already begun the process of diversifying their supply chains. Unfortunately, it’s not that easy. China’s factories have a wide, indirect reach on global production. They produce many components required to assemble products in factories around the globe. This means, if Chinese factories aren’t producing, production world-wide could come to a halt.
While the ultimate impact of the outbreak is impossible to determine, economists are forecasting that China’s growth rate could drop by 2 percentage points this quarter, which would mean $62 billion in lost growth. The only certainty: China’s position in the world economy will be felt by both consumers and businesses across the globe.
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