China’s economy boost?

Employment and Social Affairs

The outbreak of the deadly Corona virus in China is having negative impact growth prospects for the world’s second largest economy, raising fears about the global outlook if the major disease keeps spreading or worsening. The economic impact of the virus is still impossible to determine, but some economist mentioned that China’s growth rate could drop two percentage points this quarter because of Corona virus. And the disease could have an impact also on job market.

According to Kristalina Georgieva, director of the International Monetary Fund, is still too early to assess the impact on the Chinese and global economy of the spread of the new coronavirus that has emerged in Wuhan: the IMF considers it one of the many downside risks. But the impact on China’s economy and international financial markets is rapidly exploding, in parallel with the extension of restrictions on public transport and people.

Already before the disease outbreak, the IMF expected China’s growth to drop from 6.1% in 2019 to 6% this year and 5.8% next. The slowdown reflects China’s difficult transition from fast but unsustainable growth to steadier but less striking growth built on consumer spending by the country’s growing middle class.  The Chinese economy has also been hit by a trade war with the United States. The two countries signed a truce in the past months that was expected to provide some economic relief. Then the viral outbreak hit, opening inevitably the doors to a possible drop of at least 1 per cent Gdp for China, and even some drastic change in the job market.

US Commerce Secretary Wilbur Ross said that the virus would be a consideration for American businesses that are scrambling to determine how the outbreak will affect their supply chains. “I think it will help to accelerate the return of jobs to North America, some to the U.S., probably some to Mexico as well,” Ross said adding that Apple was “talking about figuring out how to replace some of the Chinese production.” Big Us firms like Apple had plans to assemble some phones and computers outside China before the coronavirus outbreak. “I think there’s a confluence of factors that will make it very, very likely more reshoring to the U.S. and some reshoring to Mexico,” Ross said. The White House has been pressuring companies in China to move operations to the United States. But as the virus broke out, McDonald’s and Starbucks decided to close scores of locations throughout the country, and major airlines are stopping or reducing flights into and out of China. And this phenomenon is not related just to Us-China trade war: Swedish Ikea, that has 30 stores across China, is shutting down all its stores in that country.

Thus, the fear of the spreading of coronavirus already had an impact also in Europe. For example in Italy the alarm raised by the news about its spreading, is putting Chinese restaurants in great difficulty: in the approximately 5.000 Chinese restaurants there is a 70% loss of turnover that translates into absolute values means minus 2 millions of euros a day, according to the estimate of the Fipe-Confcommercio Studies Office.

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