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How the new coronavirus could send shockwaves through the world economy

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An international outbreak of respiratory illness sparked by a novel coronavirus has spread from its origins in central China to at least 11 countries, with more than 1,200 confirmed cases — including a presumed case in Canada — and over 40 deaths.

Like previous outbreaks, including the SARS virus 17 years ago, the flu-like disease poses a risk to economies around the world as fear and confusion lead to abrupt changes in behaviour, decreased economic activity and a ripple effect across sectors that threatens everything from productivity to consumer prices.

The Severe Acute Respiratory Syndrome pandemic of 2003 cost the Chinese economy up to US$20 billion, according to the Asian Development Bank, as travel warnings and transit shutdowns discouraged consumption, foreign tourists stayed away and local residents stopped going out.

“The travel and tourism sectors were most obviously hit, although that ripples through the entire economy,” said Richard Smith, a professor of health economics at the University of Exeter Medical School.

“But many effects are short-lived during an outbreak as once the panic is over people go back to business as usual.”

Chinese authorities clamped down on mass transit during the SARS outbreak, hampering commutes, shopping runs and social outings. The national securities regulatory commission closed stock and futures markets in Shanghai and Shenzhen for two weeks to prevent viral transmission. And Beijing ordered movie theatres, internet cafes and other venues to shut down temporarily while hotels, conference centres, restaurants and galleries saw visitors almost disappear completely.

China’s response to the current crisis appears to be swifter, and the disease less virulent, but the country now boasts a far more extensive high-speed rail network than it did in 2003, and its economy is six times larger, upping the risk of transmission and the repercussions of an epidemic.

“China is the engine of the global economy, churning out goods,” said German health economist Fred Roeder.

Its critical role in international shipping may be thrown into disarray as authorities begin to hold back some ships from entering the port at Wuhan, a key hub on the Yangtze River.

“If they cannot leave it creates huge delays in the supply chain and value chain of businesses all across the world,” Roeder said. “It could actually hit the latest generation of smartphone if ports are shutting down.”

Manufacturing could also feel the crunch as supply chains stall, he said.

Roeder has felt firsthand the disruptive power of a pandemic. In the summer of 2003 the teenage Berliner was eagerly gearing up for a United Nations youth conference that would take him to Taipei, but the event was cancelled a few days beforehand due to SARS.

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