The coronavirus spreading in China causes investors to flee to a safe haven
Coronavirus, which became a global threat recently, causes negative effects on the world economy as well. Prof. Oğuz Esen, Lecturer, Department of Economics, Izmir University of Economics (IUE), pointed that China has become known as "the world's factory", and the production has paused due to the outbreak, which caused investors to flee to safe havens worldwide.
Prof. Oğuz Esen reported that the gold price reached its highest in the last 7 years, and while 6% of growth was anticipated for China’s economy for 2020 before the coronavirus threat, it decreased by 1.5 points, dropping it to 4.5%. Indicating that, it is the second highest drop rate in China after the 2008 global financial crisis, Prof. Esen reported that with the spread of the disease, the demand for goods and services as well as the consumer's trust decreased. Prof. Esen said, “Shutting the production facilities, factories down or pausing production, hindering supply chain, and restrictions in services industry impact the demand for goods and services. Leisure and business travels decrease significantly. Demand for all services, education and entertainment sectors in particular, drop dramatically.”
Quarantines, travel bans and restrictions, shutting down of public places such as schools cause negative effects on the economies, said Prof. Esen, and reminded that China is the world’s second largest economy and second largest importer, and its global supply activities include automotive, textile, electronics, computer and chemistry in particular.
ECONOMIC GROWTH IN CHINA DROPS
Prof. Esen pointed out that some or all of the production facilities of global brands were located in China. “China has become known as ‘the world's factory’. Pausing the production causes delays. However, there is the risk of production coming to a standstill entirely. Services sector, travel, tourism, and entertainment in particular, are expected to be affected the most. It is estimated that there will be significant drops in the global airline incomes. Of course, negative impacts are not limited to the reel sector. When the companies in these sectors experience difficulties, their financial assets lose value. People lose money in the stock markets. Financial investors flee to safe havens,” said Prof. Esen.
Prof. Esen told that all the stock markets worldwide lost 6-8% values when the news about the outbreak in Italy, Iran, and South Korea made the headlines. Prof. Esen stated the following: “As the outbreak becomes more global, the negative impact of precautions on demand-supply, and outbreak, will increase more. Yet, it is difficult to say that we are at that stage. In fact, this is not the first time for the world economy to experience this. The SARS crisis out broke 17 years ago gives us tips about what might happen. It, too, started in China then and affected foreign trade and finance markets negatively, and lasted only 6 months. However, China’s rate in world economy increased from 5% to 16 %, in world trade from 4% to 11%, and in tourism it increased from 2% to 9%.”
Prof. Esen stated that in the event of the virus spreading to other European countries, which are Turkey’s most important economic allies, the domestic economy, including foreign trade, tourism, and services, would be affected negatively.