Coronavirus infects global economy with uncertainty

In short term, coronavirus could have positive impact on Turkish economy, but in long term, it could carry risks, say analysts

Aysu Bicer   | 31.01.2020
Coronavirus infects global economy with uncertainty


As the coronavirus epidemic spreads beyond China to become a global threat, its possible impact on the world economy has become a hot topic. 

Economists warn that the outbreak will have a negative impact on China’s economy, noting the cost of the virus may rise further if the number of people infected or the mortality rate grows.

Although the Chinese city of Wuhan is the focal point of the outbreak, the virus has spread throughout China and to at least 16 countries globally, including Thailand, France, the U.S., and Australia.

At least 213 people have died in China and at least 9,821 have been infected worldwide.

On Wednesday, in an interview with France 24, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said it is too early to assess coronavirus' impact on the Chinese and global economies.

Countries suffering from Chinese slowdown

According to the report "Coronavirus: Gauging the Market Fall-out" released by Dutch-based ING Bank, risk aversion has hit asset markets as the world takes in the news of the coronavirus, with uncertainty starting to inflict a further risk premium on assets exposed to Chinese demand.

 Who would suffer the most from a Chinese slowdown? The answer to this question seems as yet unclear, but some economists have ventured assessments.

 According to the report, it will take some time to make proper forecasts of the impact of the virus, yet clearly, slowing Chinese domestic demand will impact the global economy.

This comes into greater focus when we look at the effects of the 2018-2019 trade war between China and the U.S.

The exact extent to which a weaker Chinese economy will impact its global trading partners is also uncertain.

Referring to a 2016 IMF study, the report offered some insights.

"The impact of a 1% cyclical slowdown in China is largely felt in the APAC [Asia-Pacific] region, where trade linkages are the highest, and also in the commodity-producing countries," it said.

As the world's largest commodity consumer, China lies at the heart of the global commodities market.

"The longer factories remain closed, travel restricted and construction stalled, the larger the ramification for commodities demand," it said, adding that this asset class has seen a massive selloff since the virus’ outbreak.

Countries such as Singapore, South Korea, Hong Kong, Thailand, and Malaysia are considered the hardest hit by the crisis.

On the oil side, wider travel restrictions are apparently affecting demand for jet fuel, gasoil, and other middle distillates within China.

Possible impact on Turkey's economy

As for Turkey, any forecast of the outbreak’s economic impact must be careful and provisional, since it is uncertain how quickly the virus will spread, according to Erhan Aslanoglu, a professor of economics at Istanbul-based Piri Reis University.

Although in the short term, the coronavirus crisis could have a positive impact on Turkey’s economy, in the long term, it could carry some risks and uncertainties.

A decline in commodity prices would be one of the positive impacts.

"The less Chinese demand for iron or oil, the more the decrease in commodity prices, from which Turkey as a commodity importer country could benefit," said Aslanoglu.

Another economic analyst, who asked not to be named, said that due to the outbreak, some Turkish goods such as textiles may be preferred. 

Instead of China, countries would rather do business with Turkey, the analyst told Anadolu Agency, adding that Turkey has a good pharmaceutical industry and such outbreaks can drive up drug demand.

Likewise, Turkish health tourism could benefit, the analyst said, adding that as people will avoid traveling to China for some time, healthcare demand may shift to Turkey.

As for risks, a Chinese cyclical slowdown would have a negative impact on EU countries that are selling China technology and engines, said Aslanoglu.

He added that if the EU economies struggle, so will Turkey, whose main export markets are the EU (around 50%).

Aslanoglu also said that when the global economy faces trouble, these fuels demand American, Japanese, and British bonds.

He said another factor is that if China manages to quickly overcome the crisis, in the second quarter, pent-up global demand for Chinese goods will emerge, triggering the start of a recovery in China’s economy.

Turkish Central Bank governor

At a Thursday press conference, Murat Uysal, the governor of Turkey's Central Bank, also weighed in on the issue.

If this outbreak continues to spread and grow in one of the world’s key economies, it will have a serious impact on growth figures, Uysal said.

"Firstly, it had an effect on risk aversion and growing risk perception in the markets. However, it caused a downward pressure on oil prices," he said.

The crisis may have an impact on global trade and commodity prices, he added.

According to Uysal, if oil prices continue to fall, then the impact of the crisis on Turkey could seem positive. Yet in terms of trade and capital flow, the country would feel a negative impact as well.

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