EFFECT OF CORONAVIRUS ON GLOBAL ECONOMY

ABSTRACT OF THE EFFECT OF CORONAVIRUS ON GLOBAL

ECONOMY
This study was on effect of coronavirus on global economy. The study will enlighten on the causes, the
effect on global economy and the economic importance. The following objectives were assessed on:       To
ascertain the threat of coronavirus on global economy, to ascertain the effect of coronavirus on global
economy and to find whether is economic importance of coronavirus to the global economy. In line with
the objectives hypotheses were formulated and posited.

CHAPTER ONE
Introduction

1.1Background of the study

The ongoing spread of the new coronavirus has become one of the biggest threats to the global economy
and financial markets. The virus, first detected in the Chinese city of Wuhan last December, has infected
more than 110,000 people in at least 110 countries and territories globally, according to the World Health
Organization. Of those infected, more than 4,000 people have died, according to WHO data.

China is where majority of the confirmed cases are more than 80,000 infections have been reported in the
mainland so far. To contain the COVID-19 outbreak, Chinese authorities locked down cities, restricted
movements of millions and suspended business operations moves that will slow down the world’s second-
largest economy and drag down the global economy along the way.

To make things worse, the disease is spreading rapidly around the world, with countries
like Italy, Iran and South Korea reporting more than 7,000 cases each. Other European countries
like France, Germany and Spain have also seen a recent spike beyond 1,000 cases( https://www.cnbc.com)

From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of
disruption to economies from containment measures,” Ben May, head of global macro research at Oxford
Economics, said in a report this week.“ Widespread lockdowns such as those imposed by China have been
enacted in some virus hotspots,” he said, adding that such measures if taken disproportionately could
induce panic and weaken the global economy even more.

China’s gross domestic product growth saw the largest downgrade in terms of magnitude, according to the
report. The Asian economic giant is expected to grow by 4.9% this year, slower than the earlier forecast of
5.7%, said OECD. Meanwhile, the global economy is expected to grow by 2.4% in 2020 down from the 2.9%
projected earlier, said the report. The manufacturing sector in China has been hit hard by the virus
outbreak.

The Caixin/Markit Manufacturing Purchasing Managers’ Index a survey of private companies showed
that China’s factory activity contracted in February, coming in at a record-low reading of 40.3. A reading
below 50 indicates contraction. Such a slowdown in Chinese manufacturing has hurt countries with close
economic links to China, many of which are Asia Pacific economies such as Vietnam, Singapore and South
Korea.

Factories in China are taking longer than expected to resume operations, several analysts said. That, along
with a rapid spread of COVID-19 outside China, means that global manufacturing activity could remain
subdued for longer, economists said The virus outbreak in China has also hit the country’s services industry
as reduced consumer spending hurt retail stores, restaurants and aviation among others. China is not the
only country where the services sector has weakened. The services sector in the U.S., the world’s largest
EFFECT OF CORONAVIRUS ON GLOBAL ECONOMY
consumer market, also contracted in February, according to IHS Markit, which compiles the monthly PMI
data.

One reason behind the U.S. services contraction was a reduction in “new business from abroad as
customers held back from placing orders amid global economic uncertainty and the coronavirus outbreak,”
said IHS Markit.

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.

Analysts from Singaporean bank DBS said reduced oil demand from the virus outbreak and an expected
increase in supply are a “double whammy” for oil markets. China, the epicenter of the coronavirus
outbreak, is the world’s largest crude oil importer. “The spread of the virus in Italy and other parts of
Europe is particularly worrying and will likely dampen demand in OECD countries as well,” the DBS analysts
wrote in a report. Fear surrounding the impact of COVID-19 on the global economy has hurt investor
sentiment and brought down stock prices in major markets. Cedric Chehab, head of country risk and global
strategy at Fitch Solutions, said there are three ways the coronavirus outbreak could work its way through
sentiment in markets. “We have identified three channels through which the COVID-19 outbreak was going
to weigh on markets so that’s the slowdown in China, the slowdown from domestic outbreaks … and the
third channel was financial markets stress,” he told CNBC’s “Street Signs Asia” this week Concerns over the
global spread of the new coronavirus has also driven investors to bid up bond prices, resulting in yields in
major economies to inch lower. U.S. Treasurys, which are backed by the American government, are
considered safe haven assets that investors tend to flee to in times of market volatility and uncertainty.
Fears of the coronavirus impact on the global economy have rocked markets worldwide, plunging stock
prices and bond yields.

International Monetary Fund Managing Director Kristalina Georgieva says the outbreak is the world’s “most
pressing uncertainty.” The economic disruptions caused by the virus and the increased uncertainty are
being reflected in lower valuations and increased volatility in the financial
markets( https://www.americanprogress.org)

Statement of the problem

In order to assess the possible impact of the coronavirus on the economy, it is important not only to focus
on the epidemiological profile of the virus but also on the ways that consumers, businesses, and
governments may respond to it. COVID-19 will most directly shape economic losses through supply chains,
demand, and financial markets, affecting business investment, household consumption, and international
trade. And it will do so both in traditional, textbook supply-and-demand ways and through the introduction
of potentially large levels of uncertainty. Based on this the researcher wants to investigate the effect of
coronavirus on global economy

Objective of the study

The objectives of the study are;

1. To ascertain the threat of coronavirus on global economy

2. To ascertain the effect of coronavirus on global economy
3. To find whether is economic importance of coronavirus to the global economy

Research hypotheses

HO: there is no threat of coronavirus on global economy

EFFECT OF CORONAVIRUS ON GLOBAL ECONOMY
HI:   there is threat of coronavirus on global economy

Hypothesis Two

HO:  there is no effect of coronavirus on global economy

HI:  there is effect of coronavirus on global economy

Significance of the study

The study will be beneficial to students and general public. The study will give a clear insight on the effect of
coronavirus on global economy. The study will enlighten the economic importance of coronavirus. The
study will also serve as a reference to other researcher that will embark on the related topic.

Scope and limitation of the study

The scope of the study covers effect of coronavirus on global economy. The researcher encounters some
constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is

insufficient, thereby limiting the study.
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher
has to combine other academic activities and examinations with the study.

1.7 DEFINITION OF TERMS

Coronavirus: Coronavirus disease (COVID-19) is an infectious disease caused by a newly

discovered coronavirus. Most people infected with the COVID-19 virus will experience mild to moderate
respiratory illness and recover without requiring special treatment.  Older people, and those with
underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer
are more likely to develop serious illness.

Global economy: The world economy or global economy is the economy of all humans of the world,

considered as the international exchange of goods and services that is expressed in monetary units of
account.