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Economic Impact of Coronavirus

— March 11, 2020

The bank’s experts predict a global recession, although they believe that the downturn in the world economy will not be very big.

Coronavirus is having an economic, as well as public health impact. Such a collapse has not happened on the leading stock exchanges of the planet for over ten years. The last week of February was the worst since the financial crisis in 2008, according to Reuters. Investors everywhere in the world almost panic sold out not only stocks.

For example, the price of European Brent oil fell by about 15 percent to $50 per barrel, and for 1 euro, which was worth less than 69 Russian rubles in mid-February, by the end of the month had already given over 74 rubles. If you want to read more interesting and useful articles, visit RaiseTwice. It is a new, increasing blog about self-improvement.

Deutsche Bank forecast

Recession in the European Union and a slight decline in the world economy. The remainder of 2020 naturally raises a worrying question: Is the world economy, due to the Coronavirus epidemic, which caused the collapse, now on the verge of a comparable global crisis? Until very recently, international experts have either firmly rejected the possibility of a global recession (economic recession) or refrained from making predictions, explaining that it is too early to draw conclusions about the possible consequences of the COVID-19 epidemic.

However, in the last few days of February, assessments of the immediate future were more specific and pessimistic, and the word “recession” became more and more commonly used. This includes Germany, where the development of the world conjecture is being watched with increased attention. After all, the export-oriented German economy, the largest in Europe, is heavily dependent on China, the epicenter of the epidemic, and is very closely linked to the EU countries, where the virus is now spreading rapidly.

On the evening of 27 February, David Folkerts-Landau, Chief Economist at Deutsche Bank and Head of DB Research’s Frankfurt-based think tank, held a video conference with journalists, where he released a basic forecast: the recession will have to happen both in Germany and the entire European Union, and it will be especially deep in Italy.

Moreover, the bank’s experts predict a global recession, although they believe that the downturn in the world economy will not be very big. According to the presented scenario, about 3 million people will be infected all over the world, and the number of deaths will be about 30 thousand. At the moment, the official number of victims of the epidemic is about 3,000. 

Tourist business and airlines: the situation is getting worse.

Empty pub; image by Connor Smith, via
Empty pub; image by Connor Smith, via

“The spread of the coronavirus is going to be a major problem for the German economy this year,” warned Volker Treier, head of the foreign trade department at the German Federal Association of Chambers of Commerce and Industry (DIHK) on the same day. And, he explained, what exact difficulties we are talking about: the forced downtime of local and German firms in China, the reduction of China’s trade with neighboring Asian countries, large-scale restrictions on movement, the collapse of demand in tourism and retail trade.

The town of Codonio in the Italian Lombardy region

Codonio in the Lombardy region of Italy is extinct: quarantine for the coronavirus has been declared here. The problems of the tourism industry and airlines losing customers due to strict quarantine measures in China and the forced cancellation of numerous flights were discussed a month ago. The problems have since worsened: for fear of infection, demand for flights to other destinations has fallen sharply, and the outbreak of the epidemic in northern Italy has turned this popular among tourists country into the largest hearth of the coronavirus in the EU. 

Belgian Brussels Airlines, for example, reduced the number of flights from Brussels to Italy by 30 percent. And its parent company, Lufthansa, has announced an economy regime, now hires new employees only in exceptional cases and offers its staff to take unpaid vacations. Fraport has resorted to similar measures. It operates Frankfurt Airport, which suffers serious losses due to a reduction in both passenger and cargo air travel between Germany and China. Such measures are usually a good sign of an early decline.

The real economy: disrupting production chains

What little was said about a month ago was the problems of industrial companies. Strict, but often contradictory, quarantine measures imposed by both central Chinese authorities and local authorities have disrupted well-functioning global supply chains. Both German firms in China and companies in Germany that receive raw materials, components, spare parts, and finished products from Chinese suppliers are increasingly affected. 

Container ship in the Chinese port 

The number of such container ships running between China and Europe has dropped dramatically. “Supply disruptions in the real sector of the economy are much greater than most would expect,” assures Jörg Wuttke, President of the European Chamber of Commerce in China. He told the Die Welt newspaper that only two of the largest shipping companies, Cosco and Maersk, have canceled 70 container ships from China in the past four weeks. Such vessels have been going to European ports for about six weeks, so the problem has not yet been realized in Europe, the expert believes. This will happen in March when suddenly there is a shortage of all kinds of products in various industries. 

As an example, Jörg Wuttke cited the European pharmaceutical industry, for which China is a major supplier of substances. Already soon, he warned, there may be delays in drug production in Europe. This is particularly worrisome for those who need them, but there is also an important macroeconomic aspect: in Germany and some other EU countries, pharmaceuticals are making a significant contribution to GDP, so downtime in this industry will exacerbate recessionary trends.

Recession in the EU will reduce the demand for energy from Russia

By the way, Russia also faces the same problem, where the pharmaceuticals and automotive industry depend on supplies from China, said Russian Minister of Industry and Trade Denis Manturov in Moscow. But so far, he assured journalists on February 27, the violation of logistics chains with China has not led to dramatic consequences for the Russian industry, but the authorities continue to monitor the situation. Oil from Russia goes to “Druzhba” in German Schwedt, where aircraft kerosene is produced, among other things.

The decrease in maritime freight traffic between China and Europe naturally affects not only production and trade in the EU, but also European exports. This was pointed out by Steffen Leuthold, spokesman for Eurogate, which operates container terminals at the ports of Hamburg and Bremerhaven. By the end of February, he said, there was already a lack of space for storage of containers with finished products of European companies, which accumulated waiting for shipment to China. And in the next four weeks, container ships at the berths will be even less. So, the port business is waiting for the reduction of cargo turnover and losses, and exporters may have to suspend the Chinese orders, as there is no possibility to deliver finished products. 

Similar corporate and industry facts, which are becoming more and more numerous in recent days, give a picture of a growing economic downturn in Germany and other EU countries. And the European Union is the most important buyer of Russian energy resources, Russia’s main export commodity. So, the impending recession in Europe, accompanied by falling demand for energy, also means a growing probability of an economic crisis in Russia. 

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