Monday’s 450-point plunge in the Dow Jones Industrial Average provided a glimpse of the economic stakes in the ongoing Wuhan coronavirus outbreak. At 4,473 global cases and counting – 4,409 of which are located in China – the epidemic threatens to stymie global travel and economic activity right at a time when the post-2009 global recovery is running out of steam.
Analysis
With case totals and affected countries ballooning by the day, this epidemic is very much a moving target. As such, it’s impossible to accurately quantify the ultimate impact on the global economy at this point in time. But there is still some insight to be gleaned from past precedent, notably the 2002-2003 severe acute respiratory syndrome (SARS) outbreak.
SARS infected some 8,098 people and resulted in 774 deaths (a fatality rate of approx. 10%). Like the Wuhan virus, it originated in the People’s Republic of China, where the vast majority of its cases were recorded (5,328). From the period when the first case appeared in November 2002 to July 3 2003, when the CDC finally removed its travel ban for mainland China, the outbreak hammered exposed industries like tourism, retail, and entertainment, while creating windfalls in a select few others such as healthcare equipment and services.
This all had a severe impact on overall productivity, one that is exceedingly difficult to quantify because of the interconnectedness that exists not only across industries, but across the global economy as well (for example, a collapse in bookings at a foreign-owned hotel in SARS-hit Toronto can shift bottom lines on the other side of the planet). One study, which attempts to take into account this high degree of interconnectedness, put the final cost at $40 billion for the global economy over the course of 2003 – equivalent to about a quarter of the size of the economy of Kazakhstan.
Though the effects of SARS rippled through the entire global economy, their impact was not distributed equally. Those countries and jurisdictions with the most cases experienced the largest subsequent growth hiccups. The same study estimates that the outbreak cost China the equivalent of 1% of its GDP in 2003, and a total of 2.3% of economic activity over the course of the 10 years that followed (due to longer-term, run-on effects of capital outflows). According to the Conference Board of Canada, the SARS outbreak cost the Toronto economy some $1 billion, with the tourism industry and airport traffic absorbing the brunt of the effects.
That the economic fallout from SARS was relatively muted is reason for optimism; however, one must bear in mind three points: 1) the Wuhan coronavirus is a different infection entirely; 2) it received a better ‘head start’ than SARS thanks to the unfortunate timing of Chinese New Year’s (helped too by missteps and cover-ups by the local authorities); and 3) it is currently spreading through a global landscape that differs starkly from the one SARS navigated back in 2003.
The Wuhan virus appears to be significantly less deadly than SARS, but just how much so is a matter of debate. Official data suggests a fatality rate of somewhere around 2-3%, with the elderly and those with preexisting conditions most at risk. But there may be a large reservoir of unreported cases that are either mild or completely asymptomatic, which would push the mortality rate down even further.
