Coronavirus And The Global Economy : Planet Money The coronavirus has sickened more than 40,000 people and killed more than 900. In addition to that devastating human toll, the outbreak is likely to have economically destructive effects as well.
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Coronavirus And The Global Economy

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Coronavirus And The Global Economy

Coronavirus And The Global Economy

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The outbreak of the coronavirus started at the end of last year in Wuhan, China. Since then, it has infected tens of thousands of people, the vast majority in China at this point, and it has killed hundreds of people.


And as with any event that causes such widespread tragedy and fear, it is going to have economically destructive effects as well, not just in China but throughout the world.

VANEK SMITH: So how significant will these economic effects be? How bad might they get? And can we use previous virus outbreaks to guide us in trying to understand this one?



GARCIA: And I'm Cardiff Garcia. Today on the show, a conversation with Mark Zandi, chief economist at Moody's Analytics. Mark has just released a report titled "The Global Economic Threat Of The Coronavirus" (ph), and he's going to explain the nature of that threat right after the break.


GARCIA: So let me start with this, Mark. How would you characterize the effects on the Chinese economy so far - China, of course, being the place where the virus originated and also where it has infected the vast majority of people who have gotten infected?

MARK ZANDI: Highly disruptive. The Chinese economy's largely shut down. I think the most recent number's around 60 million Chinese are on quarantine, but the rest of the country is basically on lockdown. They should be - everyone should be back at work now, and they're not. They're at home, stuck, and schools are closed, and people aren't working.

You know, obviously, China's key to the global manufacturing supply chain. So U.S. auto manufacturers, Apple would be the most obvious examples for Americans, but you've got companies from all over the world that have set up shop in China.

GARCIA: Yeah. Mark, can you actually walk our listeners through this idea of China as a huge part of the global supply chain? That seems to be one of the most important concepts to grasp in trying to understand the potential effects of the coronavirus.

ZANDI: Yeah. So when you get - like, we buy an Apple phone that might be produced in China, a lot of the components of that phone are produced other places. You know, it could be produced in Thailand. It could be produced in Malaysia. They could be produced in Taiwan, Korea. So, you know, what happens in China reverberates around the world because China is at the end of that supply chain.

GARCIA: Yeah. And, Mark, you used an earlier virus outbreak in China as a kind of template to try to estimate the potential economic effects of this coronavirus. Can you kind of explain how that comparison works and what conclusions you arrived at?

ZANDI: Yeah, that's the SARS pandemic that hit back in 2002, 2003, which wasn't as widespread as this virus, and it didn't shut China's economy down to nearly the same degree. But that event cost the Chinese economy about a percentage point of GDP in calendar year 2003. So it did a fair amount of damage to the economy.

GARCIA: And to what extent do you expect the virus to slow down Chinese economic growth this year? What are some numbers?

ZANDI: Yeah, under the most likely scenario - this is based on talking to a couple of epidemiologists on how this might - the virus - unfold, 'cause a lot obviously depends on how widespread the virus is, how virulent it is, how long it lasts. And the thinking at this point is that the virus will peak sometime in late March, maybe early April and kind of wind down by the summertime - June, July. But if that's kind of the trajectory here, then that'll cut about 2 points from GDP - Chinese GDP in the first quarter of this year and about eight-tenths of a percent off of GDP for calendar year 2020. Doesn't sound like a whole lot, but for China, that's a big deal.

GARCIA: Sure. And you mentioned that the last time a virus like this took hold in China, China was a much smaller share of the global economy than it is now. To what extent will that affect other countries throughout the world and their prospects for economic growth this year?

ZANDI: Yeah, that's right. So if you go back to SARS - 2002, '03 - China was about 4% of global GDP. Today, China is about 16% of global GDP. So if China goes offline, the economy goes offline, then that'll have ripple effects, you know, all across the globe. Those ripple effects will hit the rest of Asia first. You know, Malaysia, Indonesia, the Philippines are tied right into China. So if factories aren't functioning in China, they're going to start shutting down in the rest of Asia.

The other link to the rest of the world, particularly the emerging world, is commodity prices. Take copper. I mean, the Chinese consume a lot of copper because it goes into a lot of those factories and copper's used in a lot of products. And that copper is produced in Chile. Because everyone now knows China's not going to be producing stuff and doesn't need much copper, copper prices have fallen sharply. And, of course, if you're in Chile and looking at this, it's pretty scary because you're going to sell less copper, and what copper you do sell is going to be at a lower price. That's just an example, but if you go throughout most of the emerging world - you know, Latin America, Africa - these economies are very dependent on those commodities, and they're obviously now getting hammered by all this.

GARCIA: OK. And then to discuss the potential effects of the coronavirus a bit closer to home in the U.S., how do you see the effects here?

ZANDI: Well, less so, or a little bit more insulated, but we're not immune. And the first thing that is going to get hurt is the tourism travel industry. Three million Chinese or so come to the U.S. every single year, and they spend a lot. They're big spenders. They spend about 50% more than the typical international, foreign traveler to the U.S.

And then there's trade. We sell about a hundred billion dollars' worth of product to China every year. And, of course, if the Chinese are struggling - you know, Chinese consumers, businesses - and they're buying less stuff, that means they're going to be buying less stuff from us.

GARCIA: Yeah. And then, Mark, I also want to ask you about how this might potentially exacerbate the effects of the ongoing trade war between the U.S. and China. It looked recently as if there might be a truce in the trade war, the so-called phase one deal. Is this going to be - is this going to potentially affect that truce? How do you see it?

ZANDI: I think it does mean it is going to make it difficult, if not impossible, for the Chinese to follow through on buying more stuff from the United States. That was part of the deal. But given their situation, it's going to be tough for them to follow through and buy as much product from us as they agreed to in that deal.

GARCIA: OK. And then to get numerical here, to what extent do you think this might slow down U.S. economic growth this year?

ZANDI: I think it's going to shave four-, five-tenths of a percent off of first-quarter growth. So instead of growing 2%, which is what we've been growing, you know, pretty consistently, we'll - might grow closer to 1 1/2% as a result of this. And for the year as a whole, calendar year 2020, probably shave 0.15 percentage points. So instead of growing, say, 2%, we'll grow, you know, closer to 1.85% - something like that. So a bit slower growth.

I mean, the one thing that makes it a little more nerve-wracking is, you know, we are growing OK, but, you know, just enough to maintain enough job creation to continue to keep this low unemployment rate. If growth slows much, you know, even a little - and the virus may be the thing that does cause that growth to slow enough that we start seeing slower job growth and an increase in unemployment. And once unemployment starts to rise, even from a very low level, which is where it is today, that's the fodder for recession. So, you know, I don't think that's going to happen. But, again, you know, when we're growing as slowly as we are, if we grow any more slowly, that means we're going to stall out, and recession becomes more of a threat. So it is a bit more nerve-wracking than I would like.

GARCIA: Mark Zandi - thanks so much, man.

ZANDI: Yeah, anytime. Pleasure. It was a great conversation.


VANEK SMITH: This episode of THE INDICATOR was produced by Darius Rafieyan. Our intern and fact-checker is Brittany Cronin. And THE INDICATOR is a production of NPR.


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