Expert Commentary

How the coronavirus is infecting the economy: What the research says so far

As a novel coronavirus spreads in China and to other countries, research remains limited on the global economic consequences of the outbreak. Here’s what we know so far.

Staff at the CDC Emergency Operations Center respond to the novel coronavirus outbreak. (James Gathany / CDC)

As a novel coronavirus spreads in China and to other countries, research remains limited on the global economic consequences of the outbreak. Here’s what we know so far.

The effects of a novel coronavirus outbreak on the U.S. economy have arguably been much greater than the public health consequences here. In a little under a week, Wall Street’s major stock indexes have lost significant value in response to the outbreak in China and a spike in new cases in other countries, notably South Korea, Italy and Iran. The Dow Jones Industrial Average is down 7% (and counting) since the New Year.

Doctors writing in The New England Journal of Medicine on Feb. 20 note that “a virus that poses a low health threat on the individual level can pose a high risk on the population level, with the potential to cause disruptions of global public health systems and economic losses.”

But, as North Carolina State University economist Michael Walden explains in The Conversation, stock markets are mercurial: “Just as a bout of bad news can send markets into a tailspin, a reason for optimism could cause a rebound just as fast.”

Consumer spending is the lifeblood of the U.S. economy, and Americans so far are not taking cues from the recent market swoon to be more cautious with purchasing, according to Walden’s analysis.

‘A deeply interconnected world’

The coronavirus outbreak is still unfolding, so for analysis on economic consequences there are just a handful of articles in academic journals and blogs. One article from international researchers published Feb. 12 in the Journal of Medical Virology notes that Wuhan — the city where the outbreak started — is a major Chinese production center, with more than 300 factories owned by some of the world’s largest companies, including Microsoft.

Global carmakers are worried about their supply chains, since two-thirds of China’s vehicle production takes place in quarantined provinces, according to the authors. More than 1.7 million units of auto parts could be lost if the outbreak continues through mid-March, according to the economic forecasting firm IHS Markit.

Apple Inc. told investors on February 17 that quarterly earnings would be down from previous estimates. Some of their iPhone factories were slow to ramp up after temporarily closing. All of the iconic company’s stores in China were closed and only just reopened.

If the coronavirus outbreak continues to spread outside China, it could end up costing more than $1 trillion in lost global gross domestic product, according to Oxford Economics, another forecasting firm.

The SARS outbreak of the early 2000s, which began in the Guangdong province of southern China, is estimated to have cost the global economy roughly $40 billion, according to an analysis from the National Academics of Sciences, Engineering and Medicine. China’s global economic entwinement and size are the differences this time around. Its economy is about 10 times bigger today than at the turn of the century.

“That is what happens when countries shut down movement in a deeply interconnected world,” writes Georgetown University global health law professor Lawrence O. Gostin in a Health Affairs blog post from early February.

Another economic research firm, Capital Economics, offers a more optimistic view: “We assume the virus will be contained soon, and that lost output is made up in subsequent quarters, so that world GDP reaches the level it would have done had there been no outbreak by the middle of 2021.”

Pharmaceuticals and medical devices are among other supply chains the coronavirus is disrupting. There are no vaccines, gene therapies, or blood derivatives approved for use in the U.S. that are made in China, but some raw materials for drug manufacturing do come from China, top Food and Drug Administration official Stephen Hahn explained in a statement from Feb. 14. The FDA is reaching out to drug and device manufacturers to stay updated about potential shortages, though the agency is not actively conducting inspections in China due to the State Department’s advisory not to travel there.

“The [coronavirus] epidemic highlights existing concerns about the U.S.’s reliance on China and other countries as sources of active ingredients for pharmaceuticals,” writes JAMA Health Forum consulting editor Joan Stephenson, a point echoed last fall — weeks before the outbreak began — in U.S. House testimony from Janet Woodcock, head of FDA drug evaluation and research.

There are more than 80 clinical trials underway in China to test treatments for COVID-19, the illness the novel coronavirus causes. But it’s too early to know if and when effective treatments, or a vaccine, will be developed.

New flu?

More than 2,700 people in China have died from the current novel coronavirus. Dozens of people infected in 6 other countries and on a cruise ship have also died, according to the latest situation report from the World Health Organization. More than 80,000 people have been infected, mostly in the Hubei province in central China where the virus was first detected, which also accounts for the largest share of deaths.

The WHO updates its coronavirus information daily. Some 2.3% of cases in mainland China have been fatal, though the fatality rate shoots up to 49% among the 5% of coronavirus cases that are critical, according to a new analysis in The Journal of the American Medical Association.

Johns Hopkins University has been tracking recoveries and new confirmed coronavirus cases globally, and the WHO on March 11 declared the outbreak a pandemic. A coronavirus patient in California was the first case in the U.S. of community spread. The patient didn’t appear to have contracted the virus due to travel to China or other affected regions.

Uncertainty is the name of the game when it comes to distressed markets. It’s the uncertainty of when the outbreak will cease — before or after it becomes a pandemic — that has shaken investors.

“While some downside risks have receded, others remain, such as further production cuts at Boeing and growing uncertainty over the likely impact of the coronavirus on global and domestic economic growth,” Assistant Treasury Secretary Michael Faulkender said earlier this month.

Any vaccine or treatment developed for the current novel coronavirus might not work perfectly. Flu shots help prevent the flu, but they’re not 100% effective. CDC Director Robert Redfield told CNN in mid-February that this novel coronavirus may come to be regarded like the seasonal flu.

“The only difference is, we don’t understand this virus,” he said.

This article was updated on March 13 to reflect that the World Health Organization declared the coronavirus outbreak a pandemic.

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