What to Expect from the Novel Coronavirus Outbreak?

Introduction

Coronaviridae is a family of viruses that primarily infect animals and also have their reservoir in animals. A few types however cause respiratory infections in humans. Severity of the infection depends on the concrete type of virus and the general health condition of the infected person. The novel coronavirus (currently named 2019-nCov) causing the ongoing outbreak in China mainly infects the lower respiratory tract. This slightly reduces transmissibility compared to for instance influenza, which mainly affects the upper respiratory tract, yet could potentially increase the severity of the course of the disease. At present, there are 24,562 known cases predominantly in China, but also in 24 other countries.[1] Outside China, the number of confirmed cases is less than 20 per country. The so-called basic reproduction number (R₀) is estimated to be approximately 2.2 (95%-confidence interval 1.4-3.9 based on a sample of 425 infected persons). This means that one case of the disease triggers an average of 2.2 further cases in a susceptible[2] population. The R₀ has to be reduced to a level below 1 by public health measures in order to successfully gain control over the spread of the disease.First assessment of the economic impact of the Coronavirus in China[3] 493[4] predominantly elderly persons have died so far, all but one case restricted to mainland China. This case was a Chinese national travelling to the Philippines. According to current assessments, the virus is considered to be less lethal and pathogenic than the coronavirus outbreaks termed SARS (2002/03) and MERS (since 2012).[5] Conclusions of a greater hazard due to 2019-nCov based on the higher number of fatalities compared to SARS is misleading, because at the time of SARS, ability to test for the virus was limited. Hence, the number of unreported cases is estimated to be much higher for the SARS virus. SARS had an R₀ of 3 and was considered more problematic at that time, also because the capability to set public health measures was more limited.³

Effects on the economy

Stock markets

In general, stock markets react early and sensitively to news that may lead to negative effects on the economy. Hence, negative reactions to the current disease outbreak were to be expected. What is more, stock markets exhibited a continuous upward trend in the last year, which was bound to end at some point. European stock markets have shown rather moderate reactions to the coronavirus, with a 2 to 3% decrease of the DAX compared to its highest value in 2020. This is still 19% higher than last year around the same time. The Nikkei Index has lost 4.62% compared to its highest value in 2020, but still stands 10.2% higher  compared to the beginning of last year. Initially, Chinese stock market indices fell by almost 9% after the post-Chinese New Year reopening, which was the highest decrease since the stock market crisis in 2015, but began to recover shortly after. Further stock market reactions will continue to depend on news coverage of the virus and the inferred future expectations of how the epidemic will affect the real economy. Unrealistically negative reports and fake news can therefore cause problems. WHO has termed this phenomenon “infodemic”.[6]

Real economy

Asia

China with its nearly 20% share of worldwide GDP plays a much more significant role in the world economy today than at the times of the SARS epidemic. However, the most strongly affected province of Hubei only constitutes 4.5% of the Chinese economy.[7] Additionally, most companies in China close for a week during Chinese New Year with the public holidays now having been extended further due to the crisis. The actual magnitude of the impact on the economy remains to be seen in the coming weeks. Personal services, short-term consumer goods, transport and tourism will be the sectors primarily affected. Industrial production outside of the affected area will suffer from the reduced activity of (international) corporations seeking to minimize the risk of infection on their employees. Asia, and most notably China’s neighbours Japan, Singapore etc., will be much more affected due to gravitation effects. Here, interdependencies are highest, with economic activity often being further affected by travel restrictions.

Rest of the world

Outside of Asia, the initially affected sectors will be air traffic and tourism. Despite gaining significance in the tourism sector, the effects of tourism from China to e.g. Austria will probably be minimal. In 2019, Chinese citizens accounted for 1,464,090 overnight stays in Austria, which constitutes around 1% of total overnight stays.[8] Additionally, tourists from Europe will presumably reduce travels to Asia and instead increasingly spend their holidays in Europe. Many industrial products intended as intermediate or consumption goods are imported from China. Disruptions in the value chain will be the consequence. As the public health problem is currently limited to China, it will mostly affect individual firms whose suppliers reside in the region of Hubei as well as branches of international corporations that have closed business in China due to security concerns. Travel restrictions und uncertainty with respect to  further spread of the disease will impede economic activities and economic relations with China at least in the upcoming weeks. An additional plunge in consumption and capital expenditure in the rest of the world could arise if the population continues to feel insecure, which is unfortunately fueled by negative tabloid journalism.

It is difficult to provide a reliable assessment regarding the consequences of the coronavirus outbreak. There are studies on SARS, which was also caused by a coronavirus and had an estimated case fatality rate of 9.6%. SARS broke out in 2002/03 and resulted in around 800 deaths worldwide. Whilst SARS was successfully contained, infections with MERS, that has an estimated case fatality rate of 34.4% and a death toll similar to SARS, are still possible.[9][10]

Lee and McKibbin (2004)[11] conducted a particularly comprehensive study on the economic effects of the SARS epidemic. They estimated the effects based on an economic model that incorporated international trade relations and the effects of the epidemic on households’ and companies’ consumption and investment decisions. They estimated a 1.05% reduction in GDP in response to the shock for China. Applying this number to China’s 2018 GDP would mean a drop of EUR 128 billion. The model also yields noticeable effects for surrounding countries such as Hong Kong, Taiwan or Singapore. However, the SARS outbreak had considerably smaller effects on areas outside of Asia. The effect for the US was estimated at 0.07, while  the effect for the rest of OECD countries (incl. EU) was estimated at 0.05% (around EUR 13 billion or EUR 8 billion, respectively, when applied to 2018 GDP).

Table: GDP losses caused by SARS epidemic adapted to current circumstances 

* Effect on EU is based on the estimated effect for the rest of OECD. Dollar values are converted at 0.91, exchange rate of 29/1/2020

Sources: IHS (2020), based on Lee and McKibbin (2004)

The following is important when evaluating the validity of these numbers: With a higher basic reproduction number, SARS has apparently caused more severe disease patterns than 2019-nCov. Today, both China and the rest of the world are much better prepared than at the time of SARS. Additionally, China’s estimated real GDP growth is around 5.73% which can counterbalance a 1.05% decrease in economic output.[12] However, China has gained significance for the world economy. Difficulties in the region might lead to short-term disruptions of many value chains. Economic activity to curb the epidemic, however, partially offset lower demand in other areas. Hence, the adapted numbers of 2018 present a good indicator of possible consequences for the world economy resulting from the spread of 2019-nCov.

Further implications

Comparing to other diseases

Interestingly, epidemics like SARS or the current coronavirus outbreak are accompanied by global panic, while the actual number of infections and deaths in Europe is close to zero. Preferably, our societies should pay higher attention to influenza or measles that are both considerably more infectious than 2019-nCov. Measles caused over half a million deaths in the year 2000 and was still responsible for 142,000 deaths in 2018.[13] This reduction could only be reached by immunization

[1] http://who.maps.arcgis.com/apps/opsdashboard/index.html#/c88e37cfc43b4ed3baf977d77e4a0667 [4/2/2020] and https://www.medpagetoday.com/infectiousdisease/publichealth/84698 [5/2/2020]

[2] Susceptibility is defined as non-immunity towards an agent.

[3] Li et al. (2020): Early Transmission Dynamics in Wuhan, China, of Novel Coronavirus-Infected Pneumonia. New England Journal of Medicine.

[4] https://www.ecdc.europa.eu/en/novel-coronavirus-china [4/2/2020]

[5] The supposed case fatality rate of 2% can be expected to be lower due to less severe cases that have not been detected, decreasing the denominator.

[6] https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200202-sitrep-13-ncov-v3.pdf [4/2/2020]

[7] National Bureau of Statistics of China http://data.stats.gov.cn/english/easyquery.htm?cn=E0103 [4/2/2020]

[8] Statistics Austria „Ankünfte und Übernachtungen nach Herkunftsländern im Tourismusjahr 2019 endgültige Ergebnisse“. [30/1/2020]

[9] Al-Tawfiq, J.A., Gautret, P. (2019): Asymptomatic Middle East Respiratory Syndrome Coronavirus (MERS-CoV) infection. Travel Medicine and Infectious Disease, 27: 27-32.

[10] The total number of cases and particularly the number of light cases might be significantly underestimated, due to the fact that many Asian states including China lacked adequate tools for virus testing at that time compared to today. Hence, the actual case fatality rate might be smaller, the total number of cases significantly higher than assumed.

[11] Lee, J. W., McKibbin, W. J. (2004): Globalization and disease: The case of SARS. Asian Economic Papers, 3(1): 113-131.

[12] https://data.oecd.org/gdp/real-gdp-forecast.htm [4/2/2020]

[13] Information of the WHO at https://www.who.int/news-room/fact-sheets/detail/measles