The new coronavirus outbreak and subsequent shutdown of huge swathes of China could impact more than 5 million businesses worldwide, according to a new study.
A special briefing issued by global data analytics firm Dun & Bradstreet analyzed the Chinese provinces most impacted by the virus, and found they are intricately linked to the global business network.
The affected areas with 100 or more confirmed cases as of February 5 are home to more than 90% of all active businesses in China, according to the report, and around 49,000 businesses in these regions are branches and subsidiaries of foreign companies.
Almost half (49%) of the companies with subsidiaries in impacted regions are headquartered in Hong Kong, while the U.S. accounts for 19%, Japan 12% and Germany 5%.
As of Monday, over 70,000 cases of the virus have been confirmed in China, resulting in 1,770 deaths, according to the Chinese National Health Commission.
Dun & Bradstreet researchers found that at least 51,000 companies worldwide, 163 of which are in the Fortune 1000, have one or more direct or “tier 1” suppliers in the impacted region, while at least 5 million — and 938 in the Fortune 1000 — have one or more “tier 2″ suppliers.
The impact on businesses in China and around the world is already dragging down economic growth forecasts for the year.
In a research note published Monday, Moody’s revised down its global growth forecasts by two-tenths of a percentage point, expecting G-20 economies to collectively grow at an annual rate of 2.4% in 2020 with China slipping to 5.2%.
This assumes a baseline forecast that the spread of the virus is contained by the end of the first quarter, restoring “normal economic activity” in the second quarter. However, the global economic toll would be “severe” if the rate of infection and rising death toll do not abate, with international supply chain disruptions amplifying the shock.
“There is already evidence albeit anecdotal - that supply chains are being disrupted, including outside China. Furthermore, extended lockdowns in China would have a global impact given the country’s importance and interconnectedness in the global economy,” Moody’s Vice President Madhavi Bokil said in the research note.
The Dun & Bradstreet report identified that the top five major sectors, accounting for more than 80% of businesses within impacted provinces, were services, wholesale trade, manufacturing, retail and financial services.
Dun & Bradstreet hypothesized that a major portion of Chinese employment and sales originate from companies within the impacted region.
The impacted provinces of, for instance, Guangdong, Jiangsu, Zhejiang, Beijing and Shandong account for 50% of total employment and 48% of total sales volume for the Chinese economy.
The Chinese economy constitutes around 20% of global GDP (gross domestic product) and analysts estimated that if containment of the outbreak is delayed beyond the summer, the “cascading effect” might cause a drag of around one percentage point on global GDP growth.
“No matter which scenario plays out, the Hubei region, China, and the global economy are indicated to see a churn in their business population and some lackluster employment and revenue growth in the near-term,” the company said in the report.
“When (not if) containment and eradication is achieved, factors within the impacted geography are bound to generate economic activity with consumers, satisfying pent-up demand once improved conditions are underway. The sum of the efforts to revitalize the region will place the global economy back on track for sustained growth.”
Source: CNBC