The economic impact of the coronavirus is still a guessing game at the moment, but one thing is for sure: it is going to be big. The impact on the services sector alone has already been estimated in the hundreds of millions of dollars as restaurants and shops which would usually have been full of customers over the Chinese New Year holiday, were forced to shut their doors with no immediate sign of reopening.
The continued closure of many factories across the country is another large concern which will lead to a significant reduction in economic output. Large multinational companies such as Bosch, Volkswagen, and Tesla have all announced the closure of their facilities along with a number of other multinational and domestic manufacturers.
One estimate of the economic fallout was that the already slowing Chinese economy would see growth decrease by at least 2% this quarter, equating to a US$60 billion loss of output. Investor confidence has already taken a huge beating as seen with the Shanghai stock market deceasing in value by 8% after opening on Monday this week.
The Chinese government will be quick to push through economic measures to limit the impact of the virus on its already fragile economy. This is likely to include a large fiscal stimulus in the form of decreased taxes and increased spending, particularly on public healthcare and training. One thing the Chinese government has always been very efficient at is infrastructure spending and employment creation. A very appropriate example would be the two hospitals which were just built in Wuhan in under 10 days!
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term fiscal stimulus?
Q2. Explain the impact of a fiscal stimulus on unemployment.
Q3. Assess the likely impact of China’s fiscal stimulus on reducing the impact the coronavirus will have on economic growth.
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