Corona Virus Outbreak
The outbreak of a new virus that originated in the central-Chinese city of Wuhan is likely to slow China’s economic growth at least in the near term and could hurt its trading partners around the world.
The potential effects of the spread of the coronavirus, which has sickened more than 6,000, mostly in China, and killed 133 since its detection early last month, took center stage in U.S. Federal Reserve Chair Jerome Powell’s news conference, following the central bank’s widely expected decision to keep interest rates unchanged.
Impact on China’s growth
A Chinese government economist projected the outbreak would cut China’s first-quarter growth by one percentage point to 5% or lower.
China has imposed travel restrictions and shut businesses and schools in an attempt to contain the outbreak, but it has not quelled rising concern among companies and governments across the world, some of whom are taking swift action.
Airlines including British Airways, United Airlines, and Lufthansa are cutting or suspending flights. Tourists are canceling trips, and businesses including Apple and Starbucks are warning of the potential impact on their supply chains and sales.
Starbucks has closed more than half its cafes in China and Walt Disney shut its resorts and theme parks in Shanghai and Hong Kong during what is usually its busiest time of year. Alphabet Inc’s Google has said it is temporarily shutting down its offices in China, Hong Kong, and Taiwan.
The assessments suggest the impact could be larger than that of the 2002-2003 Severe Acute Respiratory Syndrome (SARS) epidemic, the last novel virus to cause global alarm.
That outbreak resulted in about 800 deaths and slowed Asia’s economic growth. But the overall effect on the U.S. economy was ultimately limited and short-lived.
But as Moody’s analysts and others point out, China accounts for a bigger share of global economic growth now than it did then, and the world is more closely connected.
Coronavirus and its impact on the market:
As equity markets struggle globally following the outbreak of coronavirus, shares of select healthcare and safety product makers from Japan, South Korea and India have been creating a lot of buzz.
As the fear of contracting the virus and pollution make mask-wearing the new normal, business is booming for the manufacturers in Asia. Demand for face masks and hand sanitizing liquid has soared, as local residents and visitors to and from China stock up on such products as a reassuring precaution
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Coronavirus: Impact on India
Smartphone and consumer electronics companies in India are staring at production cuts and possible delays in the launch of new products due to the coronavirus outbreak in China that has also disrupted component supplies.
The scale of the impact would depend on how long the disruption continues.
China accounts for 75% of the total value of components used in TVs and almost 85% in case of smartphones. All critical components like mobile displays, open cell TV panels, printed circuit boards, capacitors, memory and LED chips are imported from China. Air conditioner compressors and washing machine motors are also among sourced from that country.
Chinese vendors have hiked component prices by 2-3% due to supply shortages triggered by factory shutdowns, and this could rise further unless the situation improves in the next few days
Not prepared for an extended holiday
The hike in component prices, in turn, could result in an increase in product prices in India.
In India, production houses were prepared for the usual Chinese New Year shutdown.
This will likely have an impact on manufacturing in India since the extended holiday was not factored in.