The global economy had just breathed a sigh of relief after US-China agreed to a cease fire in their one-and-a-half-year long trade war. It was expected that the global economy would recover from the shock in the New Year.
But, that recovery prospect has been dashed at the sudden outbreak of the Wuhan coronavirus. And along with China, every major economy in the world is reeling from the virus shock.
Bangladesh will not remain shielded by a carapace if the crisis lingers on, economists feel.
Global think tanks and economists raised the flags and forecast that the global economy is now facing a threat which would be much bigger than the one from 2002 SARS virus- also originated from China.
In the last 18 years since then, the China's importance in the global economy grew enormously. China accounts for 17% of global GDP these days, up from 4% in 2003, according to Bloomberg Economics.
The world's second largest economy now is the topmost exporting nation, whose appetite for imports is the lifeline for many export economies.
Any blow to the Chinese economy means a lot to the whole world – actually 1 percentage point drop in China's growth would take 0.2 percentage point off global growth. Already the predictions are gloomy. Euro area, that accounts for about half of Bangladesh's exports, is set to lose 0.15 percentage point of growth - UK 0.12, Germany 0.2 and France 0.12 percentage points.
Business leaders and economists have expressed their worries, Bangladesh economy will not stay shielded from the impact on the global economy.
International companies that rely on Chinese factories to make their products and depend on Chinese consumers for sales are already warning of costly problems. Many global giants including Starbucks and
McDonald's have closed stores in China, while Toyota and many others have shut their factories there.
Major international airlines have suspended flights to and from China isolating the global second largest economy from others.
Many of China's factories – dubbed as the engine for global supply chain – are falling silent. The panic is spreading fast.
Coronavirus has been declared as a health emergency and an economic emergency is being forecast. The death toll in mainland China already exceeds that from the SARS.
China's health crisis is testing the vulnerability of the entire global economic system. Economists and investment giants worldwide are weighing in on the possible impacts of the virus on China and the globe.
Goldman Sachs has revised downward its global growth forecast for 2020 by 0.1 to 0.2 percentage points after the latest outbreak in China that so far spread to at least 28 countries.
The US bank now expects the world economy to expand by roughly 3.25 percent this year, down from 3.1 percent rate seen last year.
"The near-term impact is quite large," Goldman's chief economist Jan Hatzius told clients in a briefing on Monday. "What happens to 2020 as a whole really depends on how quickly the episode is brought under control."
Similar warnings were also given by US Federal Reserve Chairman Jerome Powell earlier this week. "China's economy is very important in the global economy now, and when China's economy slows down we do feel that," he said.
The Asian economic powerhouse is an integral part to nearly all sectors of the global economy—from supplies of raw materials and manufactured items to consumptions of minerals and farm produces, from tourism to investment. It is the world's largest manufacturer and exporter of many items—fitting the needs of both low-cost to high-end consumer goods.
Chinese travelers are the top spenders, making 150 million trips and spending $277 billion worldwide in 2018. And the country's 1.3 billion population provides the largest market in the world for several categories of consumer goods—automobiles, spirits, luxury goods—according to the McKinsey Global Institute.
Chinese economy started shrinking much before the coronavirus outbreak. A year back, Oxford Economics warned that the Chinese slowdown, if intensified further, could slow global growth to a decade low of 2.3 percent in 2019.
Feeling nervous from the trade war with USA and sluggish demand at home, China last year saw its slowest growth since 1990. Now with China, the rest of the world is bracing itself for one of the worst economic pains likely to come with the virus. China's growth in the first quarter could fall to as low as 2%, from 6% before the outbreak, forecasts The Economist in an article this week.
The hit is already being felt, prompting investors and policymakers to assess the risks and revise their previous outlooks.
UBS, Macquarie and Barclays Bank are among those who cut their growth forecast for both the first quarter and the full year, while others expect material shocks to gross domestic product.
Given China's role as factory to the world, the disruption to global supply chains will be far-reaching.
The looming crisis is two-pronged: for China, it is the sluggish demand from consumers at home; for the world, it is a massive decline in global flows of goods, services and investment.
Its nearest neighbors—which are deeply embedded in regional supply chains, export to China's consumers, and benefit from China's tourist visitors—will be most affected, Bloomberg economists Chang Shu, Jamie Rush, and Tom Orlik wrote in a note.
After Wuhan, the epicenter of the outbreak, more areas in China have been locked down and the Chinese Lunar vacation was extended for another week in 14 provinces that account for 69% of the country's GDP, according to Bloomberg calculations. They include export powerhouses Guangdong, which includes the tech city Shenzhen; Shanghai, home to China's largest port and a newly built Tesla Inc. plant; and Jiangsu, where Nike shoes are manufactured.
From Tokyo to London, hotels, casinos, airlines, and retailers are already recording a downturn and bracing for weeks, if not months, of plummeting spending.
About 163 million Chinese tourists made overseas trips in 2018—more people than live in Russia—accounting for more than 30% of travel retail sales worldwide. In 2003, when severe acute respiratory syndrome broke out, only 20 million Chinese travelers went abroad. In Macau, China's gambling enclave, new travel restrictions and a growing fear of crowds have slashed visitor numbers from the mainland by 82% so far during the Lunar New Year holiday.
Hong Kong, already reeling from months of often violent anti-China protests, is the most exposed, with a probable hit of 1.7 percentage points to growth in the first quarter, the economists wrote. South Korea and Vietnam will also suffer, as will Japan, which is scheduled to host the Olympic Games in Tokyo this summer. Commodity exporters such as Australia and Brazil will also suffer. Big Western economies, with the exception of Germany, face less of a blow because of their smaller export exposure.
Bangladesh won't stay immune
Apart from health risk from frequent travels of people and merchandise supplies from China, Bangladesh cannot stay far away from economic impacts given the huge volume of trade with and investment from China.
Businesspeople, mostly in the apparel sector, who rely heavily on China for sourcing their raw materials and machinery started worrying about possible disruption in supply chains if the outbreak lingers.
More than a forth of Bangladesh's annual imports are from China, which is also a destination of nearly a billion dollar exports.
Raw materials, machinery, boilers, electrical, electronic and mechanical appliances make up 70% of imports from China.
"China is a major source of raw materials for us. We are too worried," said Anwar-ul Alam Chowdhury Parvez, a leading apparel businessman who is now the president of Bangladesh Chamber of Industries. "It is a big threat for us as we have hardly any alternative source other than China," he said.
A huge supply of consumer goods of everyday needs—from garlic and facemask to smartphone and home appliances—also comes from China. Prices of some items have already surged. Importers in Chattogram told The Business Standard that they are worried about supplies as Chinese traders stopped booking orders until February 10 after official lunar New Year vacation was extended there due to coronavirus outbreak.
In recent years, Bangladesh saw a substantial growth in Chinese investment, mostly in power generation and mega infrastructure.
A scheduled commissioning of a coal-based power plant has been delayed as Chinese workers could not return to work yet as China extended the holidays due to the outbreak.
"Of course we have enough reasons to worry about. If the situation lingers the impact will definitely be harder since we have huge trade with China," said Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue, a local economic research organisation.
China has sizable investments in many projects here, and workers continuously come in and go out, so a health risk is there. But if workers stay away from work for a longer period, it will bog down the project work and delay implementation, which will also push up the cost, she pointed out.
Bangladesh's industries source most of their raw materials and capital machinery from China, and disruption of travel between the two countries would affect supplies of goods to export sector, which has been on the decline for the last few months, the CPD economist feared.
All sorts of consumer goods---small or big, cheap or expensive— are imported from China, and a prolonged outbreak would have a negative impact on their supplies to local market. "Whatever efforts are made by China, it may take one more month or two to overcome such a situation and put things straight. So we have genuine concerns about the impact on our economy and business," Dr Fahmida said.