Coronavirus Causing Economic Slowdown

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Fears surrounding coronavirus have caused business shutdowns in China, sending ripples throughout the world. Chinese local governments are instructing people to stay home leading many businesses to shut down in anticipation of fewer customers. Disneyland’s Shanghai location shut its doors while Starbucks closed 2,000 of its 3,600 Chinese locations. McDonalds also closed number of its restaurants.

The movie distribution company IMAX had planned multiple releases during the high grossing Lunar New Year period. However, with so many people wary of leaving their homes, the company will likely take a $60 million hit to its profit. 

Toyota, in China, stopped all factory production until February 9th, assuming the government will have a handle on the outbreak by then. Google followed suit by shutting down all of its Chinese offices. But the effect is international. Many companies based in the U.S. have suspended work-travel to China. Facebook and HSBC are among those that have restricted business trips to the country. British Airways, Air Canada, and many other airlines have grounded all flights to China over concerns of spreading the coronavirus. 

Apple, which just announced the highest yearly profits of all time in America, is one of the only companies that has not yet adjusted production. Foxconn, the Chinese firm responsible for Apple’s hardware production, said it was “business as usual.” Apple’s goal is to increase production 10% this year to provide for growing 5G demand. If they are forced to slow production, the company might be required to adjust its projections.

Last Thursday, the Dow Jones Averages were down 450 points, after a significant selloff, and currently the Shanghai Stock Exchange Composite Index (SSE Composite) is down 229.92 points. Prices for oil have retreated by 14% from the start of the year, a figure indicating a worldwide fear of a global slowdown.

China’s economy is more consumption driven than many other world economic leaders, which means that people staying home will hit its economy hard. Beijing had set a target growth rate of 6%, but given this epidemic, a government think tank is predicting the economy will slow to below 5%. The Economist Intelligence Unit (EIU) even suggested a slowing to 4.4%.

We will likely see aggressive Chinese government stimulus spending on infrastructure jobs later in the year.

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