This article examines the economic impacts that COVID-19 could have on the global economy, including the supply of pharmaceutical products.

Outbreaks of a virus like COVID-19 affect societies in three ways. Firstly, there is the immediate impact of the virus on people who are affected, those caring for them and those grieving for the dead. Secondly, the outbreak affects people with other illnesses and health needs, as they become neglected due to health services being overwhelmed. This was clear when a teenager with cerebral palsy died in Wuhan in early February while his father, his sole carer, was quarantined. Another example was when children in West Africa died from other illnesses, such as malaria, while the priority was to contain Ebola.

Thirdly, there is the economic impact. In the past, Mr Xi Jinping has spoken about ‘black swan risks’ - sudden, unexpected twists that can cause damage to the economy of China and its rejuvenation as a 21st Century global power. Along comes COVID-19 on the back of a swift avian flu containment, a trade war with the US and while huge advances are being made in China’s Belt and Road initiative. COVID-19 will not destroy China’s economic power, but it could wreak major short-term economic havoc globally.

Disease outbreaks naturally cause economic harm. The 1918 flu pandemic (‘Spanish flu’) affected 30% of the US workforce. At the time of the SARS crisis, 2002-2003, China held 8% of the global economy. In 2020, it occupies 19%. It is not possible to predict the scope of economic impact, but it is likely that this disruption will last months, largely due to disruption because of quarantine and social distancing measures, such as closing schools and businesses.

In response to the SARS outbreak, foreign companies could restructure and relocate their supply chain with relative ease. This is not possible in the global economy of 2020. Chinese supply chains are integrated into the worldwide manufacturing ecosystem to such an extent that many firms cannot fully trace all their suppliers, especially for Just-in-Time production. Two-thirds of the world’s polyester and 50% of the world’s LCD screens come from China. Apple is deeply dependent of China’s manufacture of smartphone parts. And 90% of Chinese exports come from provinces, such as Hubei.

Supply chain disruption is a given as an immediate consequence of the COVID-19 crisis. There are other consequences, too. Closure of schools creates childcare burdens for working parents. A significant slice of the workforce is missing, as migrant workers are unable to return to their jobs in cities, such as Shenzhen and Shanghai. In those cities, business require special government permissions to restart work. The legal teams of some Chinese suppliers are now invoking force majeur clauses to relieve themselves of contractual obligations.

Travel restrictions are having an impact on another important Chinese export: tourists from China that spend 250 billion USD around the world each year that many countries have come to rely on as an important source of growth.

More crucially, China manufactures and exports 3000 pharmaceutical products, including 153 crucial drugs, from stroke treatment to blood pressure. These are drugs that we rely on, that keep people alive. Ninety per cent of antibiotics sold in the USA are exported from China. Eighty per cent of the active ingredients necessary for the development of medicines elsewhere are also made in China. Hence, we could face a double whammy: the manufacture and supply of drugs from China being disrupted, precisely at a time where hospitals worldwide may experience a spike in demand for treatments to deal with the emergence of COVID-19.

The next article will focus on the containment of COVID-19 within the context of the Chinese health system.

By Mark Gibson, Health Communication Specialist, 26th February 2020.

References:

Business in paralysis, The Economist, February 15th 2020
Campbell C, Crisis mode, TIME, February 17th 2020
Coronavirus: How bad will it get? The Economist, February 1st 2020
Le Page M, The race for treatments, New Scientist, 8th February 2020
Viral Slowdown, The Economist, February 15th 2020
The Wuhan crisis, The Economist, January 25th 2020
Time and again, The Economist, January 25th 2020
Under observation, The Economist, February 8th 2020

COVID-19: possible economic impacts