Financial News

Coronavirus Triggers Global Economy Slowdown

The economic side effects of the deadly coronavirus are still rolling out – this time a steep decline in the price of oil.

As much of China is under quarantine with factories shutting and workers forced to stay at home, the impact of the virus on the global economy is becoming apparent.

China is the world’s second largest economy, and if the country catches a cold, the rest of the world sneezes.

“The number of people infected and affected by the coronavirus continues to grow globally. Governments, as well as agencies such as the World Health Organization, are working tirelessly to contain, and ultimately defeat the virus,” said financial data monitor MSCI.

“In China, local governments have locked down cities and businesses and restricted travel. And the general public has adopted voluntary home quarantine. The human toll has been steep.

Human toll

“As with many crises, the repercussions of the coronavirus can also be felt in the global economy and the financial markets. Many observers compare the coronavirus to the 2003 SARS epidemic.

“While this can provide useful insight, there are differences between the two periods to consider. China is a much bigger part of the global economy and markets than it was 17 years ago. China’s share of global trade rose to 11% in 2018 from 5% in 2003, based on World Bank statistics. Meanwhile, its share of the MSCI Emerging Markets Index has risen to 34.3% from 7.86% in 2003.”

Meanwhile, the International Energy Authority (IEA) has forecast demand for oil and gas will fall due to coronavirus for the first time in a decade.

Demand is expected to drop by 435,000 barrels a day against a demand of 100 million barrels a day in the final quarter of 2019.

Health emergency

“The novel coronavirus (Covid-19) is a major global public health emergency that has brought tragedy to many lives. Its impact is still unfolding globally,” said the IEA.

“There is already a major slowdown in oil consumption and the wider economy in China. While the SARS epidemic of 2003 is widely used as a reference point for analysis of Covid-19, China has changed enormously since then.

“Today, it is central to global supply chains and there has been an enormous increase in travel to and from the country, thus heightening the risk of the virus spreading. In 2003, China’s oil demand was 5.7 mb/d and by 2019 it had more than doubled to 13.7 mb/d (14% of the global total). Moreover, last year China accounted for more than three-quarters of global oil demand growth.”

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