Economies infected with uncertainty from coronavirus

By Aysu Bicer

ANKARA (AA) - As the coronavirus epidemic becomes a global threat by spreading outside China, its possible impacts on world economies are being discussed internationally.

Economists warn that the outbreak will have a negative impact on China’s economy, noting the cost of the virus may increase further if the number of people infected or mortality rate increases.

Although the Chinese city of Wuhan is the focal point of the outbreak, the virus has spread throughout China and to at least 16 countries globally, including Thailand, France, the U.S. and Australia.

At least 213 people have died in China and at least 9,821 have been infected worldwide.

On Wednesday, in an interview with France 24, Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), said it is too early to assess the impact of the coronavirus on both the Chinese and global economies.

- Countries suffering from Chinese slowdown

According to the report "Coronavirus: Gauging the Market Fall-out" released by ING Bank, risk aversion has hit asset markets as the world responds to news of the coronavirus, with uncertainty standing to demand a further risk premium of assets exposed to Chinese demand.

Who would suffer the most from a Chinese slowdown? The answer to this question seems ambiguous, but there are some forecasts by economists.

According to the report, it will take some time to make proper forecasts of the impact of the virus, yet clearly slowing Chinese domestic demand will impact the global economy.

One can understand this clearly by looking at the recent effects of the 2018/19 trade war between China and the U.S.

It is stated that the exact extent to which a weaker Chinese economy impacts its global trading partners will also be uncertain.

Referring to a 2016 IMF study, the report offered some insights.

"The impact of a 1% cyclical slowdown in China is largely felt in the APAC region, where trade linkages are the highest, and also in the commodity producing countries," it said.

China is at the center of the global commodities market, being the world's largest commodity consumer.

"The longer factories remain closed, travel restricted and construction stalled, the larger the ramification for commodities demand," it said, adding this asset class has seen a massive selloff since the outbreak of the coronavirus in China.

Countries such as Singapore, South Korea, Hong Kong, Thailand and Malaysia are considered the most affected by the crisis.

On the oil side, wider travel restrictions are apparently affecting demand for jet fuel, gasoil and other middle distillates within China.

- Possible impacts on Turkish economy

When it comes to Turkey, one should be very careful in assessing the impacts of the crisis on its economy, since there is uncertainty over how quickly the virus will spread, according to Erhan Aslanoglu, a professor of economics at Istanbul-based Piri Reis University.

Although in the short term, the coronavirus crisis could have a positive impact on Turkey’s economy, in the long term, it could carry some risks and uncertainties.

A decline in commodity prices would be one of the positive impacts on the economy.

"The less Chinese demand for iron or oil, the more the decrease in commodity prices, from which Turkey as a commodity importer country could benefit."

Another source, who asked not to be named, said due to the outbreak, some Turkish goods such as textiles may be preferred.

Instead of China, countries would prefer doing business with Turkey, the source told Anadolu Agency, adding Turkey has a good pharmaceutical industry and such outbreaks can increase drug demand.

Likewise, Turkish health tourism can be positively affected, the source said, adding people will not be willing to travel to China for a while, suggesting that health care demand may shift to Turkey.

As for risks, a Chinese cyclical slowdown would have a negative impact on EU countries that are selling China technology and engines, Aslanoglu said.

He added that if the EU economies struggle, so does Turkey, whose main export markets are the EU (50%).

Aslanoglu also noted that when the global economy gets in trouble, there will be demand for American, Japanese and British bonds.

According to him, another aspect is that if China gets over this crisis quickly, in the second quarter, postponed global demand for Chinese goods will emerge, triggering the start of a recovery in China’s economy.

-Turkish Central Bank governor’s remarks

During a press conference Thursday, the governor of Turkey's Central Bank, Murat Uysal, also weighed in on the issue.

If this situation continues to spread and grow in one of the most important economies of the world, of course, it will have a serious impact on growth figures, he said.

"Firstly, it had an effect on risk aversion and increasing risk perception in the markets. However, it caused downward pressure on oil prices," he said.

The crisis may have an impact on global trade and commodity prices, he added.

According to Uysal, if oil prices continue to fall, then the impact of the crisis on Turkey seems to be positive. Yet in terms of trade and capital flow, the country would feel the negative impacts as well.