GLOBAL – The slowdown of manufacturing in China due to the Coronavirus (COVID19) outbreak is disrupting world trade and could result in a $50 billion decrease in exports across global value chains, according to new UNCTAD estimates.
UNCTAD (the UN Conference on Trade and Development) attributes this decline partly to the virus containment measures in China – where the outbreak emerged in late December.
The UN body says that these measures have already caused a “substantial decline in output” and as a result adversely affecting global trade.
The head of UNCTAD’s Division on International Trade and Commodities, Ms. Pamela Coke-Hamilton noted that for developing economies that are reliant on selling raw materials, the effects could be felt “very, very intensely”.
“Assuming that it is not mitigated in the short-term, it’s likely that the overall impact on the global economy is going to be significant in terms of a negative downturn,” Ms. Pamela added.
Citing the China Manufacturing Purchasing Manager’s Index (PMI), the UNCTAD economists noted that it had fallen to 37.5 – a drop of about 20 points – the lowest reading since 2004.
The economists explained that the drop in PMI also correlates directly to exports and also implies a two per cent drop in overall export.
UNCTAD further notes that more losses would be incurred if the virus continues to spread.
“Of course, if the virus continues to spread and gets out of control, and we see closures not only in China but also in India and the United States and everywhere else in the world, then it would be a big problem”, said Alessandro Nicita, from UNCTAD’s Division on International Trade and Commodities.
In addition to falling manufacturing levels, UNCTAD also highlighted a decrease in the number of container ships leaving Shanghai in the first half of February (from around 300 a week to 180), which then returned to normal levels in the second half of the month.
“Right now, the impact on the global value chains is already being felt and will continue probably for a few months,” Ms. Coke-Hamilton said.
“But if it rebounds, say in the next few months, then the long-term or year-long impact will be a little different and will be better. So, it depends on what happens in China.”
Meanwhile, the International Monetary Fund (IMF) and the World Bank Group has offered to inject around US$50 billion into low income and emerging market nations, pending requests for support.
“Thanks to the generosity of our shareholders, we have about $1 trillion in overall lending capacity”, IMF Managing Director, Kristalina Georgieva, said during a joint press conference with the head of the World Bank Group.
“This facility could provide about $40 billion for emerging markets that could potentially approach us for financial support,” Ms. Georgieva said.
She further added that the global funds also have the Catastrophe Containment and Relief Trust – the CCRT – which provides eligible countries with up-front grants for relief on IMF debt service falling due.
A joint statement by IMF/World Bank said, “We are engaged actively with international institutions and country authorities, with special attention to poor countries where health systems are the weakest and people are most vulnerable”.
Available measures according to the statement included emergency financing, policy advice and technical assistance, the institutions explained, underlining the need to help countries to invest in protecting themselves.