By, Joshua Barzola
In the era of social media, everyone has already heard about the Coronavirus (CoV). With the virus spreading globally, especially in mainland China, the question remains: what will be the economic impact of the outbreak?
According to World Health Organization, the term CoV represents a large family of viruses that cause symptoms ranging from a simple cold to more dangerous viruses such as the infamous severe acute respiratory syndrome (SARS) that broke out in 2003. The virus is described as a zoonosis, which is an infectious bacterium that can spread between animals and humans, similar to the recent ebola virus.
You might be asking how does fear of a virus affect the world economy or financial markets? Investors and consumers shy away from uncertainty. Perception can create a cloud of uncertainty that leads to people avoiding or being cautious of relevant places, people, and things. In this case, we can compare CoV to the 2003 SARS outbreak to see just how great of an economic impact the latter made around the globe.
MSCI measures the performance of investment indexes in particular asset classes, industries, and geographies. When the SARS pandemic began, the MSCI China Index showed that Chinese equities under performed for 6 months compared to the MSCI World Index due to a loss in confidence from investors. Local restaurants, hotels, and airline industries that were severely impacted due to SARS outbreak, contributed to investors putting their money elsewhere in the short term. The New York Times reported during the SARS outbreak, that hotel occupancy was down 20.0% in Singapore and far lower in many Hong Kong hotels. Furthermore, some Asian airlines had to downsize to prevent further profit losses.
Looking back to the famous SARS outbreak, economists estimated global losses from the virus reached about $40 billion. In Singapore, to combat the economic downturn, the government intervened with a stimulus package of over $130.00 million spent on the tourist industry to keep businesses afloat. The Chinese government from 2003-2006 injected over ¥25.7 billion (approximately US$3.7 billion) in order to combat SARS and upgrade health facilities for future public disease emergencies. This would be beneficial in the current outbreak as the country will seemingly be more prepared to handle a larger mass contamination as CoV spreads across mainland China.
As Canada reports its first CoV cases in Vancouver and Toronto, will this first world country be as severely economically impacted as other developing countries? During the SARS outbreak, the Governor of the Bank of Canada at the time, David A. Doge, said the disease would have a, “short-term impact,” on the economy but warned that, “an epidemics like SARS, if it carries on, is obviously going to be quite serious”.
In particular, Canada’s oil industry could be negatively impacted by the outbreak of CoV with fears of the virus stifling travel like SARS did. China being the second-largest oil consumer in the world, could indirectly impact Canada’s ability to sell its oil if travel remains strained, lowering the dollar per barrel. During the SARS outbreak, oil prices saw a dip of 20.0% which could easily repeat itself this time around.
While perception may not always be the reality of any situation such as the CoV virus, regardless, the ramifications that take place from a micro level up to a macro level can be drastic as people change the way they travel and/or consume products.