Coronavirus may drag global GDP by 1 percentage point if containment delayed beyond June: Report

The cascading effect of coronavirus epidemic might cause a drag of about a percentage point on global GDP growth if the containment is delayed beyond June, a report said on Thursday. According to the report by Dun & Bradstreet, the outbreak of coronavirus is already having a considerable impact on the Chinese economy, and its implications will increase for global businesses with operations or suppliers in the region.

On January 30, the World Health Organization (WHO) declared the coronavirus (COVID-19) outbreak a global health emergency. Typically, there is a slowdown in the Chinese business activity during late-January on account of the Lunar New Year holidays. This is generally factored into the inventory planning by global businesses, hence, the impact on them has so far been muted, the report said.

"However, the extent of the impact on global businesses will depend on how soon the virus is contained," the report said adding that the role of China in the global economy has increased manifolds. The Dun & Bradstreet data shows that 22 million businesses, or close to 90 percent of all active businesses in China, are located in the most impacted regions.

"With the impact of the outbreak on the Chinese economy, the cascading effect might cause a drag of approximately one percentage point on global GDP growth if containment is delayed beyond the summer of 2020 (June)," the report noted. The data shows that at least 220 Indian firms have legal linkages with around 350 companies in China. Of these 220 Indian companies, 58 percent are in the manufacturing sector, 40 percent are in the services sector and the remaining 2 percent are in the construction sector.

"While companies engaged in sectors such as retail trade, wholesale trade, and transportation are expected to have foregone revenues, companies engaged in sectors such as construction and certain manufacturing segments will experience a pile-up of their order books and have a deferred growth," the report said. The report further noted that China and Hong Kong together constitute 9 percent of India's export basket and over 17 percent of India's import basket.

"While some exporters may need to diversify into other markets to minimize their supply chain and cash flow disruptions, some exporters in sectors such as medical equipment may be able to increase their supply to China," the report noted.