South Alabamian

Coronavirus hits economy


 

 

The novel coronavirus, known as COVID-19, is spreading across the planet. While the numbers in the United States so far have been low, the virus is already impacting the economy. The impact will be more pronounced when the virus becomes widespread. It is impossible to determine all the effects on the U.S. economy. But we can look at some areas that are being affected.

Lost tourism is one of the larger threats. About three million Chinese visit this country each year. They spend about $6,500 per trip, 50 percent more than typical international tourists. Predictions are that economic losses from tourism will be $5.8 billion.

U.S. exports to China will suffer. Chinese factories have closed, and commercial flights are grounded. Exports such as computer chips, plant equipment, and aircraft will decrease. The Phase I trade deal calls for $200 billion in additional U.S. exports to China during the current year. This probably will not occur and will affect exports of agricultural products, especially soybeans and grains from the Midwest.

Closed production facilities are curtailing Chinese exports. This is critical because many firms import consumer goods from China. About one-fourth of Walmart’s products come from there. American retailers are attempting to shift purchases to other countries. But as the virus spreads, this may close the door on other nations. Eventually, this could lead to shortages for American consumers.

American automobile manufacturers are vulnerable. Most plants use “just-in-time” inventory for parts. If parts deliveries dry up, firms will have to reduce or stop production until they become available. A Nissan plant in Japan that makes the Nissan Rogue for export to the United States had to shut down for several days because of parts shortages.

At the same time, China is the largest overseas market for U.S. automobiles. As the virus continues to curtail economic activity, this translates into reduced consumer spending — and less demand for automobiles — in China.

Keep in mind that these are trends that are either occurring now or expected to occur in the future. Undoubtedly, there will be other sectors that will be affected.

How much will the coronavirus affect economic growth in this country? Economists predict the impact on first quarter gross domestic product (GDP) will be a reduction in the range of .50 percent to 1 percent. But if the virus continues for a longer period, or a pandemic occurs, the effect on GDP could be considerably larger.

Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at wccurtis39 @gmail.com.

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