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‘Wuhan’ coronavirus is a worry. How will it impact the world economy?

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There has been numerous reports on how the Wuhan coronavirus is affecting the world economy. Many has pointed out that many industries will be affected. Especially tourism for example because people are now more inclined to stay at home or they may be disallowed from flying as there are now many flight restrictions already. My personal thinking is that it should affect the economy but this is not going to effect us like a genuine financial crisis; both depth and width.

I do have many of my personal reasons for thinking so, but I think I will let Shang-Jin Wei, a former chief economist at the Asian Development Bank, is professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affair to explain it in more detail via an article in marketwatch.com (click to read full article here)

Shang explains that he thinks the infections and deaths from the coronavirus to happen by second or third week of February 2020 and by early April, both the Chinese authorities and the World Health Organisation (WHO) will declare the epidemic to be under control. Thus, the effects of the virus on China’s economic growth for the whole of 2020 is likely to be small, maybe within 0.1 percentage of gross domestic product.

He says that effects on the first quarter growth will be big but will be substantially offset by above-trend growth for the rest of the year. Effects on the world GDP growth is even smaller. The reason he says so is through the experience of the 2003 SARS crisis where a big decline in China’s GDP in second quarter was offset by higher growth in the next 2 quarters. Many investment banks’ economists over-predicted the negative impact on growth.

He also shared that the worry about people spending lesser because they are staying indoors no longer holds true because online shopping is now a common scenario. As for holidays, those who have planned for a trip would have set aside some budget for it and could do it in the near future. Anyway, short term is a negative for restaurants, hotels and airlines. As for the closures of factories, government offices and schools, these are extensions of the usual closures for festive season.

He cautioned that these assumptions are also based on the current coronavirus crisis and does not take into account if it gets even more serious or lasts even more longer. He also said that beyond the small slowing of growth, Chinese policy makers still have room for both monetary and fiscal policies too. Example, the banking-sector reserve ration is still relatively high and the share of public-sector debt to GDP is still manageable compared to China’s international peers. In brief, there is no need to push the panic button yet where economic growth is concerned. It’s a very comprehensive article. Read it here: article in marketwatch.com (click to read full article here)

Please feel free to disagree with the above views and have the thought that coronavirus will cause the next economic crisis yeah. Just remember that whatever we believe, we need to take the appropriate actions for it. If we believe the next crisis is on the way, then it’s time to save every cent we could from now till then because there will definitely be lots of opportunities to pick up. However, if we think it’s just a window of opportunity, then identifying and buying into some undervalued investments may be the action we need to take. Yeah, in the mean time, feel free to wear the face mask for that extra security yeah. Happy understanding.

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Next suggested article:  Debt management is key to financial success. Seriously.

Header Photo by Ian Panelo from Pexels

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