Globalization has brought the countries such closer that any positive or negative factor affects almost whole world. Apart from the positive and negative argument, this time the world has been affected by a new type of virus which is being addressed as COVID-19. When you are reading this article, there is very low probability that any of the part of this world has remained unaffected from the unseen enemy – COVID-19. The death toll has risen already to more than eleven thousands till now. Scientists or doctors have been fighting their best against the virus which is known to us. But the fact which hasn’t showed yet is that the world economy is going to face a hard time due to this pandemic. From an economic perspective, the key issue is not just the number of cases of the virus rather the level of disruption world economy. What is going to happen to small economic countries like Bangladesh is the burning question now.
Wuhan, the center of the virus outbreak, is the provincial capital of Hubei province of China. The economic dependency and relation with the country with Bangladesh is indisputable. Bangladesh imported goods valued more than 50 billion US$ in last year which consists more than 1/3 portion of the goods from China alone. From alpine to bulldozers, spices, machinery parts; even raw materials for our export oriented industries are mainly imported from China. It’s obvious that if any unanticipated shock shakes the Chinese economy, it will have an effect on Bangladesh economy too.
China’s gross domestic product growth is experiencing the worst in decades now. The Asian economic giant was expected to grow by 5.7% this year, according to the report presented by Organization for Economic Cooperation and Development. But, the growth rate is assumed to be fallen to 4.9%. Meanwhile, the same report has described the global economy to grow by 2.4% in 2020 which earlier was projected to be 2.9%.
The manufacturing sector in China has been hit hard by the virus outbreak.
The Caixin Manufacturing Purchasing Managers’ Index – a survey of private companies – considers any reading lower than 50 as Purchasing Contraction. According to their survey, China’s factory activity is coming in at a record-low reading of 40.3 which in return will hinder the economic growth that are closely related to China’s economy, specially the countries from Asia Pasific and South Asia including Bangladesh.
A reduction in global economic activity has lowered the demand for oil, taking oil prices to multi year lows. That happened even before a disagreement on production cuts between OPEC and its allies caused the latest plunge in oil prices. China, because of its vast production process or capacity, is the world’s largest crude oil importer. The spread of the virus in West Europe, especially in Italy is worrying and will likely dampen demand for crude oil in OECD countries as well. Reduced manufacturing activities along with reduced oil demand from the virus outbreak and an expected increase in supply because of Saudi Arabia’s decision- have become “double whammy” for oil markets.
Consequences of the raw material source country of Bangladesh economy, has already started to hamper the country’s export industries.
For the first time in country’s history, Bangladesh exported goods valued more than 4 billion US$ in last economic year which was 10.55% higher than of 2017-18 economic year. This was definitely a good sign for country’s economy in the running economic year. But, due to the outbreak of the pandemic, valued around 10,700 crore BDT buying orders from Europe has been cancelled by first half of the March.
Cedric Chehab, head of country risk and global strategy at Fitch Solutions, said there are three ways the corona virus outbreak could work its way through sentiment in markets. Among these three channels, one is the tension in financial and stock market. Fear surrounding the impact of COVID-19 on the global economy has hurt investor sentiment and brought down stock prices in major markets around the world. Bangladesh’s main stock exchange the DSE has seen the index point to reach at lowers than 3500 as a result of continuous drastic fall for 6 working days in a row. Analysts pointed their finger to global market crash as an impact of corona virus fear while describing the reason behind this continuous falling.
Motor parts industries are largely dependent on China as China is the biggest importer of world’s motor parts businesses. Around 50% of total production happens in Wuhan; the capital city of Hubei province. The city has even been tagged as “The Motor City”. Auto parts manufacturer like General Motors, Honda, Nissan, Peugeot Group and Renault do have their own motor plants in Wuhan. Subsequently, motor vehicles industries are facing negativity due to widespread outbreak of Corona virus. In 2019, Wuhan was recorded as the fourth largest car market and 2.24 million of cars were manufactured then whereas production has fallen to 1.9 million by February. Car sales in China fell 92% according to the data. China Passenger Car Association predicting 10% decrease in sales for the first half of the year and 5% declination over the year. Not only China is facing the loss. The Domino Effects are being felt around the globe for shortages of supplies of manufacturing raw materials as those are mainly imported from China. Tesla’s new factory in Shanghai shut down, postponing date of production. Productions are also being suspended in the largest car manufacturers like Hyundai and Kia in Korea, Nissan in Japan, Fiat Chrysler automobiles.
Corona has its direst effect on the tourism sector both for recreational and medical purpose.
According to World Travel and Tourism Council (WTTC), in 2014 the mentioned sector’s contribution in job market was 4 million directly and indirectly which was hypothesized to reach to 6.5 million by 2024. In the first six months of last year, where the number of foreign tourists visited Bangladesh was 0.2 million, the outbreak of the virus has brought it down to 27 thousands. It is uncertain that how long this situation will sustain or become worse. Consequently both the forward and backward linking industries will be highly affected and almost 47% people will be jobless in this sector alone.
According to ILO almost 25 million people will be jobless due to the effect of corona virus on economies. This data is ringing the bell of a global economic recession. Bangladesh fortunately didn’t face the worst outcomes of recession took place in last decades. But, this time the situation is not the same as earlier. It is being assumed that both formal and informal sectors of Bangladesh will be affected. Though the first phase of thunders will go over the informal sectors like day laborers, household workers, street hawkers; but it won’t leave the formal sector employees unharmed if the locked down situation goes on for a long time.
Political accusations have taken a new turn by the two largest economies of the world. Both some of China and the USA sources are claiming their rival’s association behind the outbreak of COVID-19. Several sources including ex CIA operative claimed with documents that the Wuhan Institute of Virology (WIV) is the source of the virus. While their Chinese counterpart disclosed some video footages where some people are seen to spit and anointed on lift buttons and super shop’s products purposely, whom the Chinese sources claimed to be the USA agents. But one thing common, both countries’ sources claimed that the outbreak to be the part of “Biological Warfare”. But almost all analysts, examining the facts and myths, came to the point that the pandemic has been caused naturally.
The Asian giant’s economy has experienced the worst shock in decades, perhaps in generations. But, the other side of the coin is not that plain.
The Shenzhen stock exchange experienced the biggest fall in index point around 1700. Financial sharks felt the pressure to sell stocks which devalued the Chinese currency and stock prices plunged wildly. Here comes the master stroke from the Chinese President Xi Jinping. By his order, China bought around 30% shares of western giant companies valued around 20 billion US$. It’s only a matter of time the investment will pay multiple times higher as the corona virus situation is being eased in China.
Ending of the First World War initiated the British supremacy which lasted till the second one. Since 1947 the world has seen bipolar axis and alliances under the shade of two winners- the USA and Russia. Both of the catastrophes were the beginning of new era. If the pandemic comes to an end with the help of Chinese, will the “Rat Year” be followed around the world? Will it be the beginning of a new era? Time will come with the answer. But no matter what, part of a biological warfare or natural pandemic, the human race must rise against all odds.
The author is a post graduate student of Department of Economics at the University of Dhaka.