Translated by
2020/03/27 14:41:00

Influence of a coronavirus of COVID-19 on economy

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2020

Chubais found positive effect from a coronavirus for Russia

The head of Rusnano management company Anatoly Chubais at the end of March, 2020 called effect, positive for Russia, of spread of a new coronavirus. According to him, the pandemic will promote growth of digital economy.

«
Occurs, you know, such "coercion to digit". Life pushed us to it a tough hand, but we anyway will experience all these passions with a coronavirus. And I think that upgrades technology and upgrade psychological partly will remain. Therefore I think that the amount of digital economy in general will grow up a little, and it is one of the few positive consequences of all story with a coronavirus — he said on air of RBC TV channel.
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The head of Rusnano management company Anatoly Chubais at the end of March, 2020 called effect, positive for Russia, of spread of a new coronavirus
The head of Rusnano management company Anatoly Chubais at the end of March, 2020 called effect, positive for Russia, of spread of a new coronavirus

Chubais noted that 75% of staff of Rusnano by the end of March, 2020 work in the remote mode. According to him, short-term effect was the fact that, first, performance fell.

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Output number two — it is so possible to work, occurs catastrophic nothing … Now I do not see any failures — he told. At the same time, the board of the company works at office, Chubais reported.
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According to him, against the background of mass transfer of employees to work from the house there will be program problems, to decrease quality of Wi-fi and Internet access.

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But inevitably we will live in it, and at least, month, I think, as it is more, and we will begin to master these technologies. What will occur after end of all these horrors koronavirusny? We will obviously not return to an initial status — he said.
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Earlier Anatoly Chubais estimated losses of economy of Russia from a coronavirus at trillions of rubles and suggested to distribute to some citizens money from stabilization fund of Russia. According to the top manager of Rusnano, it will help to save the most vulnerable category of Russians from poverty.[1]

Inconceivable rise of unemployment in the USA because of a coronavirus

The number of jobless claims in the USA against the background of epidemic of a coronavirus of COVID-19 grew at the end of March, 2020 to record 3.28 million in a week.

​​ the 50-year diagram of jobless claims in the USA
​​ the 50-year diagram of jobless claims in the USA

The balance of U.S. Fed for the first time in the history exceeded $5 trillion

At the end of March, 2020 against the background of COVID-19 coronavirus epidemic the balance of FRS for the first time in the history exceeded $5 trillion.

​​ the Balance of FRS for the first time in the history exceeded $5 trillion
​​ the Balance of FRS for the first time in the history exceeded $5 trillion

China called a coronavirus pandemic the beginning of dedollarization of the world

At the end of March, 2020 the Chinese media called a coronavirus pandemic the beginning of dedollarization of the world. The Chinese edition The 21st Century Business Herald published article in which the journalist outlined economic problems of the USA during a pandemic and also explained why crisis of COVID-19 can take away the status of world reserve currency from dollar, i.e. lead to dedollarization of the world.

For many years China purchased more and more significant role in trade relations, however the dollar only strengthened the positions as the dominating reserve currency. Despite an initiative "One belt and one way" which had to advance new model of the international cooperation and development the share of China in the trade sector expressed in yuans made only 14%. After crisis of 2008 the volume of non-bank debts in US dollars almost doubled while the share of other leading currencies stagnated or was reduced.

The Chinese media called a coronavirus pandemic the beginning of dedollarization of the world
The Chinese media called a coronavirus pandemic the beginning of dedollarization of the world

In the Chinese article different forecasts of economic downturn in the USA as a result of the crisis caused by a coronavirus are considered the dependence of economy of the USA on consumption and also ghost effects of decrease in demand for other countries is selected. At the same time the author of article claims that neither fiscal, nor monetary policy of the USA will not be effective during koronavirusny crisis. He considers that aggressive monetary policy and stimulation of demand will lead to inflation because of violation of a supply chain, production reduction and a business volume.

The author claims that the stock market of the USA became just a bubble because of ten years' stimulation, and finds possible crisis in bond market. He says that the USA could not play the integrating role during crisis and "caused damage to other countries to own advantage".[2]

France sends troops in the cities for control of movement of citizens because of coronavirus epidemic

On March 16, 2020 information is brought to the management of hospitals of France that in the country will impose state of emergency. It will be followed by input of army parts and prohibition on free movement for 45 days.

As cybercriminals earn millions from a coronavirus

On March 13, 2020 the anti-virus company Eset issued the message about how cybercriminals profit on a coronavirus. Read more here.

The ECB increases purchases of assets because of epidemic by 120 billion euros

On March 12, 2020 the ECB expanded the existing program of purchase of assets in connection with COVID-19 epidemic. Before the bank bought assets on average of 20 billion euros a month; now the decision until the end of the year in addition was made to buy assets of 120 billion euros, and a considerable part in a packet of purchases will make corporate bonds. Experts of the ECB claim that it will allow to support the markets of the countries in which risks on government bonds – for example grow the Italian market. Read more here.

Millions of children pass school because of a coronavirus

Millions of children pass school because of a coronavirus
Millions of children pass school because of a coronavirus

Collapse of the stock markets

So far the number of the diseased quickly grows therefore economic forecasts are regularly reviewed, generally towards lowering of expected results. So, on February 24 became in the worst afternoon for the world stock markets for the last three years. Sharp falling happened at the leading world exchanges: in particular, Stoxx Europe 600 decreased by 3.6%, the Nasdaq index dropped by 3.2%. The crisis phenomena are fully characteristic also of Asian security markets. Decrease in indexes was provoked by rapid spread of a virus outside China — the number infected grew in Iran, South Korea and Italy[3].

In the Russian Federation on February 24 there was in the day off therefore biddings took place on February 25 — the index of the Moscow Exchange calculated in rubles for one session lost 3.33%. Negative dynamics was shown by many blue chips among which there are securities of Gazprom, Lukoil, Norilsk Nickel, Rosneft and other companies of the first echelon. Growth against the background of panic of investors is shown by only protective assets — gold and the American state bonds. Stocks of the domestic gold mining companies have positive dynamics.

Today it is possible to select a number of the industries which will suffer from epidemic stronger than the others. Among them there are a tourism, retail, energy carriers, the technology sector. The profit of participants of the listed markets in the first quarter can decrease 2020 by 5–10%. Fall of stocks of some companies is capable to reach 20%. Naturally, stocks of these corporations will be under pressure in the nearest future, falling can be estimated at 15–20%.

Epidemic already had very serious impact on the market of automotive industry. According to analysts of Moody's Investors Service, at the end of 2020 car market can decrease by 2.5%. This dynamics is connected also with narrowing of demand which is observed because of epidemic, and with failures in supply chains. The greatest falling concerned the Chinese automobile market: for the first two weeks of February of sale of passenger cars in the People's Republic of China, by estimates of China Passenger Car Association, decreased by 92%.

The forecast for the general macroeconomic indicators is regularly reviewed towards decrease. The role of China in world economy is very big therefore negative trends were outlined in the middle of January when growth of incidence was observed mainly in the People's Republic of China. Experts of Bank of America are afraid that 2020 will come to the end with the worst indicators according to the results of the last 10 years. In my opinion, growth rates of world economy as a result of epidemic will decrease by 0.5-1% of percent points.

What sectors of the market epidemic will strike first of all

The outbreak of a coronavirus in China – not only a source of economic risks which can cause changes (or "reshuffle") production chains worldwide, but also the reason of growth of social tension in the country. And citizens of China, and at the foreign governments even more often have suspicions that epidemic could be avoided if the reply of the Chinese authorities to primary flash was more operational. Experts of the international Coface group specializing in trade insurance and risk management analyzed the developed situation in the world market in general and the market of the People's Republic of China in particular and made a number of forecasts of rather possible scenarios of further succession of events in the short-term and long term.

Epidemic can give up as a bad job ambitious economic targets of the People's Republic of China for 2020

Whether epidemic can become a critical event which will cut the grass from under feet the governments of the People's Republic of China and will force it to review the domestic policy? Economists of Coface consider that such scenario is improbable, in particular if actions of the authorities of Celestial Empire in the following are several months effective and will allow to constrain further spread of a virus. In spite of the fact that the risk of radical political or economic scenarios is estimated as low at present, current situation anyway will negatively affect also the Chinese market, and world. First of all the markets of the countries of Asia which are closely connected with economy of the People's Republic of China will suffer. Possibly, as a result of the chaos seeded by epidemic, the Central Banks of a number of the Asian countries this year should optimize the monetary policy in one way or another.

It is at the moment obvious that the outbreak of a coronavirus will render much more considerable influence on the world market, than in 2003 epidemic of atypical pneumonia rendered. Actually, China was isolated from the international trade scene that causes significant interruptions in transnational chains of creation of added value, and today China is integrated into the world market much more densely, than in the 2003rd therefore epidemic of a coronavirus and the related stops of the Chinese plants anyway will affect all sectors of the world market. The share of Celestial Empire in world GDP makes 17% today (4% in the 2003rd), and volumes of private consumption grew from 13% of the volume of consumption of the American households in the 2003rd to nearly 40% in the 2018th.

By estimates of Academy of social sciences of the People's Republic of China, the epidemic outbreak of a coronavirus can cost to China about 60 billion dollars that means that growth rates of GDP of Celestial Empire in 1 quarter of the current year can fall up to 4.5% and even below in annual terms. And this scenario is considered optimistic as in it only the interruptions which resulted from epidemic in the first quarter year whereas it is at the moment difficult to foretell how the situation will develop next quarters are taken into account. Anyway, already now it is clear that that growth rates of national GDP reached target 6% according to the results of the current year, the authorities of China should take a number of system measures.


Risks in the short term (3-6 months)


The first all sectors anyway connected with passenger traffic will be damaged. Some Chinese companies working in the transport sector, the service industry and retail receive an essential share of the annual profit during celebration of the Chinese New year. Considering that this year during a holiday season movement over the country was strongly limited in connection with quarantine measures, many enterprises, especially small, can fall into a difficult situation. It is also necessary to consider that the service industry role strongly increased in the Chinese economy since 2003. About 40% of national GDP are the share of private consumption. At the same time it is possible to expect that in the nearest future consumption of households will remain at record-breaking low level established even during trade war of China and the USA. The volume of "free" money at the disposal of households grows quicker, than volumes of private consumption that means that the consumers concerned by not clear perspectives on the future switched to savings behavior model.


Interruptions in the international supply chains and creations of added value will become the following effect of epidemic flash. The stop of work of the Chinese factories which in the long term can drag on not for one month, will cause interruptions in supply chains and creations of added value worldwide. Cambodia, Vietnam, South Korea, Malaysia, Indonesia, Philippines and Australia are especially dependent on deliveries of intermediate products from the People's Republic of China (so, and are vulnerable in the conditions of suspension of such deliveries). And Japan and South Korea are in this situation vulnerable doubly – not only as importers, but also as exporters: the enterprises of these two countries sell intermediate products and raw materials to the plants of Celestial Empire, many of which were closed for an indefinite term. It is expected that is the strongest as a result of epidemic the world automotive industry, the sector of ICT and production of electronics will suffer.


The Chinese consumers already became nearly main target audience for a number of the industries of global market. Considering that this audience as it was already noted above, switched to tough savings behavior model, business in a number of the industries can miss essential volumes of profit. So, for example, according to the forecast of McKinsey published in the 2019th this year on the Chinese consumers 36% of all sales volume in a segment of luxury goods is necessary. In other words, today in the world there is a huge number of the companies depending both on the Chinese demand, and on the Chinese production capacities – Apple strongly depends on the last, for example. Considering this fact, volume of warehouse stocks of the Chinese enterprises – one of key factors which can give to business the chance to overcome the period of idle time of production capacities with the minimum losses. Certainly, no warehouse stocks are infinite, and a lot of things in this situation depend on how the restrictions of transportation of loads between China and other countries imposed in connection with epidemic will long remain in force. By the current estimates, most the foreign enterprises working in a segment of production and sale of electronics, there will be enough warehouse stocks approximately until the end of March or the beginning of April.


Risks in the medium and long term


Gain of a macroeconomic imbalance: high inflation will not allow China to mitigate monetary policy (growth of consumer price index in January, 2020 was 5.4% – in comparison from only 1.7% for the same period of last year). At the same time the authorities of China set very ambitious goal – to achieve doubling of growth rates of GDP in comparison with 2010 the current year, and for this purpose Beijing anyway should take a number of system measures. In spite of the fact that the People's Bank of China will hardly go for increase in a key interest rate and will work more "precisely", it is possible to expect depreciation of yuan. If yuan exchange rate to dollar falls to a mark of 7.20 yuans or more for dollar, the essential capital outflow from the country can begin. To achieve growth, the companies should increase a share of borrowed funds in working capital, at the same time for some companies which work with rather high debt load already now, service of additional loans can be problematic. As a result it is possible to expect increase in number of payment defaults practically in all sectors of the market, but first of all in the transport sector, retail, automotive industry and the sector of ICT.


Political risks: doctor Li Venlyan is a doctor who publicly announced the first a new coronavirus and tried to sound the alarm and whom the authorities not just ignored, but also accused of "distribution of groundless rumors", not so long ago died from that coronavirus. After his death over the country the wave of national discontent swept. Considering deterioration in an economic situation, there is a risk that the discontent which arose in connection with actions of the authorities in this situation will develop into the general dissatisfaction of the general public with a political situation in the country and the existing mode. In addition to it the country is expected by the surge in rise in unemployment connected with a stop of factories in quarantine areas. At the moment a lot of things depend on how the authorities of China will manage development of the situation in the following several months and whether will be able to provide 60 million people begetting in the localities which are cut off from the outside world in connection with quarantine measures, medical and any other necessary assistance.

Also It should be noted that current situation can show to entrepreneurs and the authorities worldwide, how strongly they directly or indirectly depend on China and the international supply chains "passing" through it and creation of added value. It, in turn, can push business and the authorities to review the order existing in international market and to redistribute transnational economic chains to reduce the dependence on the Chinese import or demand that will hardly do good to the Chinese economy.

The telecom operator, largest in Japan, urges to work 200 thousand employees from the house

In the middle of February, 2020 the Nippon Telegraph & Telephone telecom operator, largest in Japan, urged to work 200 thousand employees from the house to avoid trips to work per hour peak and to be protected from a coronavirus. Read more here.

IDC: As the coronavirus will help the ICT industry

On February 16, 2020 analysts of IDC published a research in which reported that the outbreak of a coronavirus of COVID-19 in China not only undermines world economy, but also is capable to affect favorably development of the ICT industry and opens new business opportunities for developers of information and communication technologies. Read more here.

The Mobile World Congress exhibition in Barcelona was cancelled because of a coronavirus

The international exhibition of the mobile industry Mobile World Congress (MWC) which had to take place in Barcelona from February 24 to February 27 is cancelled because of the mass failure of the companies provoked by a coronavirus to take part in it, País writes on February 12.

According to the newspaper, the guide of the organizer of the event, GSMA association which represents the interests of mobile operators made such decision on Wednesday according to the results of a meeting.

More than 20 companies, including Ericsson, Sony, LG, Umidigi, Nvidia, NTT Docomo, Gigaset, Amazon, McAfee, Vivo, ARCEP, Deutsche Telekom, STMicroelectronics, Nokia, Rakuten, AT&T, Orange and Vodafone refused participation in MWC. The Spanish authorities called the companies for tranquility and asked not to give in to panic.

As epidemic of a coronavirus will be reflected in economy of the People's Republic of China and the neighboring countries of Asia: analysis of experts of Coface

On January 23 the authorities of China recognized a coronavirus which outbreak began in Wuhan, a class B infection – atypical pneumonia was carried to the same class in due time. Beijing involved a number of the measures directed to suppression of spread of a disease including completely isolated 16 large cities in which about 50 million people live. Also restrictions for the international passenger traffic were introduced – in particular, the USA, Hong Kong and Taiwan cut air traffic with the People's Republic of China.

Sharp decrease in passenger traffic – and during a season of celebration of the Chinese New year, the most popular two-week season for travel among citizens of China became an effect of epidemic flash: on average for one such season more than 3 billion passenger traffic are made. Measures for fight against spread of a disease will lead to fall of income of business in a number of sectors, experts of the international Coface group specializing in trade insurance and risk management consider. First of all negative effects will be shown in the transport sector, retail and the service industry. So far early to say about how epidemic will affect growth rates of GDP of Celestial Empire, however all signs indicate that it will slow down.

While the new coronavirus even has no own name, it is known to specialists under code name 2019-nCoV. It is considered that the first cases of infection occurred in the market in Wuhan – possibly, as a result of consumption of meat of the infected animal. Local authorities in the first days after flash tried not to allow broad disclosure of information on infections, however Beijing interfered personally, closed the market on a quarantine, recognized a new virus an infection of a class B and entered a number of measures for prevention of spread of a disease, including prohibition on movement. For treatment of the diseased the separate hospital as internal cross-contamination in public health organizations became one of basic reasons of spread of a disease was constructed. Also Beijing discharged of a position of the mayor of Wuhan and in a tough form warned local authorities in all other cities and provinces about inadmissibility of concealment of new disease outbreaks.

Such quick and resolute reaction of the authorities of the People's Republic of China, however, could not dispel a concern of players of international financial market. The problem is also that the outbreak of disease matched with the Chinese New year and long two-week vacation during which nearly 3 billion passenger traffic are made. For many enterprises this period – the most important in a year because at this particular time they receive an overwhelming part of the annual revenue. It is possible to expect that the first because of epidemic carriers, retailers and the service industry will suffer. More important, however, how events will develop further: if the situation is aggravated, consumers across all China can seriously begin to limit themselves in expenditure and to save all "free" money till the best times.

For the industry of China epidemic will also not pass without effects. China participates in a set of the international production chains, and some of them are already broken. The Province of Hubei from where the coronavirus began to extend, is in the central part of China and therefore is an important transport and logistic node for the whole country. Besides, in the province production capacities of the Chinese automobile concerns and also metallurgical, petrochemical, textile, agrofood and other enterprises are located. Certainly, during a quarantine business can sell goods from the warehouse stocks located in other provinces, however if the period of a quarantine drags on, idle time of the Chinese plants can be reflected not only in economy of the Celestial Empire, but also in international market in general.

Epidemic of atypical pneumonia had no significant effect on the Chinese economy in due time. Sales of retailers and car makers decreased a little, but quickly returned to former indicators. The stock market of the People's Republic of China also showed not the best dynamics within 2-3 months after the beginning of epidemic, however quickly returned to a track after the initial stage of epidemic flash. Influence of epidemic of a coronavirus on the stock markets can be estimated not earlier than March 16 when the authorities of the People's Republic of China publish indicators of business activity for January-February. At this stage it is difficult to predict what impact the coronavirus will have on growth rates of the Chinese and world GDP, however if to consider the general deceleration of dynamics of expansion of the market of the People's Republic of China, it is possible to assume that the coronavirus at least will become one of factors of deterioration in key indicators of market development of Celestial Empire this year.

Risks

1. Decrease in growth rates of GDP: at this stage to give the specific forecast too early, however in general as it was noted above, the coronavirus can become one of negative factors because of which the Chinese market at the end of 2020 will slow down growth rates.

2. Growth of number of payment defaults and bankruptcies: in sectors which more than the others will suffer from the quarantine measures connected with coronavirus epidemic already in the nearest future the number of bankruptcies and payment defaults can increase. First of all it is about the transport sector, retail and the service industry. However if the situation worsens, also the heavy industry of the Province of Hubei, in particular automotive industry, the textile industry and the sector of information and communication technologies will begin to suffer.

3. "Cooling" of the next Asian markets: on average the Chinese tourists spend abroad 130 billion dollars a year. 20% of this amount – in Hong Kong, 15% – in Macau, 6% – in Thailand and 5% – in Japan. The restriction of movements connected with a quarantine can lead to the fact that the countries dependent on the tourism industry can miss usual volumes of profit.

Closing of all of Apple Store in China

At the beginning of February, 2020 Apple closed all the official shops on continental China, i.e. actually in the whole country. The reason — spread of a coronavirus. Read more here.

Google closed all the offices in China because of a coronavirus

At the end of January, 2020 the Google company closed all the offices in China because of the outbreak of a coronavirus. These measures covered all offices in continental China and also offices of Internet giant in Hong Kong and Taiwan. Read more here.

The Chinese companies in large quantities pass to remote work

At the end of January, 2020 the companies in China were advised employees to work from the house in attempt to slow down spread of a fatal coronavirus. The enterprises also offer workers longer holiday and advise the workers returning from the most affected areas not at once to come to work.

The Chinese government also prolonged New Year's holidays for three days. Bytedance company which possesses the platform for exchange of video TikTok and the Chinese game giant Tencent was ordered to employees to work from the house. The network of Hotpot Haidilao restaurants closed the branches across all China for a week. And the government of the city of Suzhou stated that the local enterprises will be closed at least till February 8.

The companies in China were advised employees to work from the house in attempt to slow down spread of a fatal coronavirus
The companies in China were advised employees to work from the house in attempt to slow down spread of a fatal coronavirus

Several companies, including the Swiss banking group UBS and builder Country Garden, ordered to the employees returning from the city of Wuhan or the Province of Hubei to spend the incubatory period at home. In Hong Kong the stock exchange cancelled a ceremony of Lunar New year because of concerns concerning an infection.

Global markets also suffered: investors are afraid that quarantine measures will have a negative impact on world economy. In Tokyo the stock index of Nikkei 225 dropped by 2% after the government of China prolonged holidays. Stock exchanges in Shanghai and Shenzhen which had to open on January 31 were closed till February 2. In the markets the prices of everything, from oil to copper as traders stake on decrease in the global demand for time of isolation of the Chinese cities fell. The price of oil dropped by 2.2%, despite attempts of the Ministry of Energy of Saudi Arabia to weaken market fluctuations. Copper prices in London dropped by 5.5% that became the sharpest reduction in cost of copper for the last five years.[4]

Huawei cancelled a conference for developers because of a coronavirus

And meanwhile in Wuhan high-speed construction of the hospital intended especially for treatment of patients with such pneumonia is begun. It should be handed over in six days.
And meanwhile in Wuhan high-speed construction of the hospital intended especially for treatment of patients with such pneumonia is begun. It should be handed over in six days.

At the end of January, 2020 Huawei postponed a large developers conference in connection with the outbreak of a coronavirus in Wuhan. The HDC.Cloud 2020 conference was going to be held in Shenzhen from February 11 to February 12, but for security of participants the action was postponed to March 27-28. Read more here.

Notes