As COVID-19 sweeps the world and widespread suppression measures have brought much of the global economy to an abrupt halt, the UN Conference on Trade and Development (UNCTAD) has presented a fairly grim picture of the devastating economic impact the pandemic is likely to have on various countries in the near term.
Massive Global Impact
In a recently published report, UNCTAD estimates a $2 trillion shortfall in global income, with a $220 billion hit to developing countries (excluding China). Those hardest hit include oil-exporting countries, as well as other commodity exporters, and those with strong trade linkages to the “initially shocked economies.” These are expected to see a full percentage point wiped off their growth.
The scenario forecast by UNCTAD sees a $50 billion decrease in exports across global value chains resulting in growth downturns of between 0.7% and 0.9% anticipated in countries such as Canada, Mexico and the Central American region, countries interconnected with East and South Asian supply chains, and countries close to the European Union.
Overall, the U.N. trade body predicts the coronavirus pandemic will cause global foreign direct investment to shrink by 5%-15% from previous forecasts, resulting in only marginal growth in 2020-21, with automotive, airlines and energy industries hit hardest.
The Importance of China
Chinese manufacturing is key to many global supply chains, especially those related to precision instruments, machinery, automotive and communication equipment. “Any significant disruption in China’s supply in these sectors is deemed to substantially affect producers in the rest of the world,” states the U.N. report.
The most impacted economies are forecast to be the European Union (machinery, automotive, and chemicals), the US (machinery, automotive, and precision instruments), Japan (machinery and automotive), the Republic of Korea (machinery and communication equipment), Taiwan Province of China (communication equipment and office machinery) and Vietnam (communication equipment).
UNCTAD notes that the estimated global effects of COVID-19 are subject to change depending on the containment of the virus and or changes in the sources of supply.
New Covid-19 cases in China have recently dropped to their lowest level since late January and all 14 temporary hospitals have been closed this week in Wuhan – the epicentre of the outbreak. Hopes now are that China’s tentative steps to lift COVID-19 social restrictions and get factories back to work will soon allow production to recover.
Tips for Businesses Importing from China
As trade with China gradually gets back on track, here are a number of possibly helpful suggestions to keep in mind:
- Anticipate delays in getting goods out of China in the near future.
- Check directly with suppliers to confirm the order ready dates.
- If goods need to be trucked between provinces within China, first confirm with the factory that goods are ready, and then consult with the freight forwarder to make a plan for maximum efficiency.
- If possible, book any upcoming shipments with an available ready date to get goods moving as quickly as possible.
- If the order isn’t urgent, consider delaying the shipment until some of the backlog has cleared and freight rates likely return to normal.
- If production is at an early stage, consider sourcing outside of China.