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As number of coronavirus cases continues to grow, what will its economic impact be?

As number of coronavirus cases continues to grow, what will its economic impact be? : Google
  • Gulf News

It’s not every day that real events are inspired by a sci-fi thriller, it’s usually the other way around. But when the Hollywood star of a film centred on a deadly virus jokes that she’s “been in this movie before,” the lines between fiction and reality become blurred.

The star is Gwyneth Paltrow and the film is Steven Soderbergh’s 2011 production Contagion, about a fast-moving mysterious virus that kills millions worldwide after a pig is infected by a bat and slaughtered and served by a chef in Hong Kong.

Sounds familiar?

An almost deserted train station in the Chinese city of Wuhan, which is where the coronavirus was first detected by authorities on December 31, 2019

With over 80,000 confirmed cases and nearly 3,000 deaths in at least 39 countries, the coronavirus bears chilling similarities to Soderbergh’s film from nearly a decade ago. Except it’s not a movie, and we don’t yet know how this story is going to play out.

What started as a case of mild flu on New Year’s Eve in Wuhan, China has since turned into a global health emergency. With 43 deaths and counting, the Islamic Republic of Iran boasts the highest number of fatalities after China, leading to a rapid spread of the virus across the entire GCC, as Shiite Muslims return from their visits to the republic’s holy shrines.

The UAE in late February said it is prepared for worst case scenarios, while Kuwait demanded a “specialised global medical team” from the World Health Organisation (WHO) to help bring the spread of the virus under control. Saudi Arabia, which attracts thousands of devout Muslims every year, also suspended visas for pilgrims hoping to visit its holy cities of Makkah and Madinah.

Uncertaintly over the coronavirus has rocked investor sentiment

The virus’ most frightening effect is perhaps on the world economy, with Oxford Economists warning it could knock 1.3 percent off global growth this year, amounting to a staggering $1.1trn in lost income.

And it all came tumbling down

Global shares sunk as the Dow and S&P 500 dropped more than 3 percent late last month, in the worst 2-day drop since 2018, while oil prices fell 4 percent on Monday, February 24, but rose back up two days later, as investors covered short positions following three sessions of losses.

Oil-rich GCC economies are particularly exposed, with leading airlines Emirates, Etihad Airways and flydubai restricting travel and flights.

The virus came just a few months after research by Colliers International predicted the number of Chinese tourists travelling to the GCC would increase 54 percent from 1.4 million in 2018 to 2.2 million in 2023.

WHO is closely monitoring the spread of the coronavirus all over the world

The UAE, where Chinese visitors are currently the second and fourth highest ranked source markets for Abu Dhabi and Dubai, respectively, may be hit the hardest. The UAE was expected to welcome a projected 1.9 million Chinese visitors over the next three years, with Saudi Arabia following suit with 1 million visitors.

Chinese tourists are also the world’s highest spenders while travelling abroad, with total outbound travel and tourism expenditure reaching $277 billion in 2018, according to the Colliers data. They were expected to generate an estimated $3.48 billion in travel and tourism revenue by 2023, an increase of 71 percent when compared with figures from 2018, with the UAE ranking the 9th most popular destination in the world for the 1.67 million Chinese outbound high net-worth individual (HNWI) travellers, according to the Chinese Outbound Travel Research Institute (COTRI) in collaboration with C-Trip.

More alarming is the fact that the virus’ impact was significant even before the surge in cases in the GCC, according to Simon Allison, CEO of hotel owners’ alliance Hoftel and organiser of the annual Gulf and Indian Ocean Hotel Investors’ Summit (GIOHIS) in the UAE.

“Hotels which were 10 percent ahead of 2019 for the first few weeks of the year had slumped to 20 percent year-on-year declines in February, with probably worse to come now that there may be a genuine fear of the virus spreading in the Middle East,” he tells Arabian Business.

The body temperature of an Iraqi child returning from Iran is measured upon arrival at the Najaf International Airport

“As for the top-line impact on their revenues, the reality is that lowering prices won’t make people travel if they are frightened of becoming ill. But, in a weak market, as soon as one hotel starts slashing prices, others are bound to follow, so there is likely to be weakness in both occupancy and rate. Hotels will need to look even harder for economies in costs than they have done up to now,” he says.

Wake-up call?

Mario Hardy, CEO of Pacific Asia Travel Association (PATA), believes the virus may be the wake-up call that countries which are heavily reliant on China need.

“Most countries around Asia have a heavy reliance on the Chinese inbound market. If you look at Thailand, 27 percent of its tourists come from China. In other markets around China, sometimes it’s 50 percent. That number now is nearly zero or very small. So overnight people saw huge drops in bookings and travel. To me, that’s the real wake-up call that we as an organisation have been promoting for the last seven years. We’ve been telling destinations, ‘Please, diversify your source markets.’

“If you’re too heavily relied on one market – it doesn’t matter if it’s heavily relied on China or Russia or European markets – because you rely on one source market as a primary driver for your tourism economy, there’s a risk which could be an epidemic or economic crisis or political tensions as to why one particular market may stop coming and you will lose 20, 30, 40, 50 percent of your market in one day,” he says.

Iran is among the countries in the Middle East suffering from the virus

And regional businesses are beginning to worry. While premium gourmet brand Bateel witnessed a 20 percent growth in business in February compared to last year, a drop in travel will heavily affect its fundamental sales in Duty Frees, where the brand is the number one food marketer in Dubai International Airport.

“With the reduction in travel, we are big players in the travel industry, we are in Duty Frees and the supplier line, so that will be impacted. Up to two days ago the markets were not paying any attention to the coronavirus. Everybody is beginning to be a bit concerned,” says CEO Dr Ata Atmar, adding that the brand has paused expansion to China.

“In China we were about to start [expanding] but I think in the last two months, we’ve had to put a freeze on that. Everybody is uncertain about this pandemic and coronavirus. Everybody could suffer as a result of that,” he says.

More importantly, Atmar says businesses have not developed contingency plans to deal with a potential sudden drop in business that could be as high as 50 percent.

“We still do not have a full measure of what the impact might be. Nobody can predict how severe it could be but we need to develop some contingency plans of how to deal with it. If suddenly business goes down 50 percent, we need to find a way to deal with that, but we don’t have detailed plans at the moment.

Hong Kong authorities released almost $10bn in cash assistance to residents to counter the economic fallout of the coronavirus

“I think we are well positioned in terms of where we are and we have significant resources both in terms of management and finances, so we should be able to deal with it, but it’s going to be a challenge,” he says.

The luxury market will be hit even harder, with analysts expecting it to lose $43 billion in sales this year as a result for the virus.

High end watch brand Ulysse Nardin, which opened its flagship store in the Dubai Mall in May last year, says luxury brands will suffer in Dubai as its typically reliant on Chinese tourists.

“If you look at the luxury business as a whole it is affected by coronavirus and it’s not just the luxury industry. But if we talk about our industry, and especially if we talk about the region, I think Dubai Mall relies for about 35-40 percent for the luxury segment for the Chinese. If you do focus too much on the Chinese you are definitely suffering,” says the brand’s chief commercial officer (CCO) Matthieu Haverlan.

“The coronavirus for sure is having an impact on luxury goods, because the Chinese represent one third of the spending on personal luxury goods worldwide, whether it’s in China, Hong Kong, Macau, in South East Asia or in Europe,” he says.

Countries in the region are taking steps to protect themselves from the virus

But Ulysse Nardin is “very much balanced,” according to Haverlan, with Chinese customers being “just one customer type among others who are purchasing in Dubai”.

The CCO claims the brand has had a record month in January in the boutique and has already met targets for February, but says “that’s not the case for many of the other watch brands”.

A brighter second quarter

Yet the UAE Ambassador to the People’s Republic of China, Dr. Ali Obaid Al Dhaheri, believes the economic impact is likely to be short-term, with markets expected to see a brighter second quarter thanks to effective fiscal methods by the Chinese Ministry of Finance.

“Any impact of the coronavirus COVID-19 to China is likely to be short-term. At the start of this year there was a slow reopening of production due to the virus and its related challenges, including carefully implementing health and safety for the benefit of workers and the public good,” he tells Arabian Business.

“However, China is winding its economic activities back up to a stronger state and current projections by the International Monetary Foundation (IMF) show economic challenges waning in the spring as we move to a brighter second quarter,” he says.

Mario Hardy, CEO of Pacific Asia Travel Association

The fiscal methods by the Ministry of Finance include the introduction of tax policies and financial relief measures to aid the economy and guarantee sufficient liquidity, according to Al Dhaheri, who maintains that growth in bilateral UAE-China trade is expected by the end of the year.

“The longer-term outlook for China is positive for the UAE, which has a close trading relationship as the country’s number 1 trade partner in MENA, with bilateral trade flows of around $70 billion per year. For this year, we should see a brief bump in bilateral trade for the first quarter, however by the second quarter we will see China recovering and moving back to excellent shape for the remainder of the year.

“The growth in bilateral UAE-China trade across numerous sectors, from clean energy to Artificial Intelligence, health, education and many more, will offset any challenges. Over this coming decade we will see a flourishing relationship for the mutual interest of both parties, as part of a dynamic global economy,” he says.

For the time being, Hoftel’s Allison recommends regional residents make the most of lower hotel rates across the GCC while they can.

“Locals should definitely try to enjoy the lower rates and emptier hotels by travelling within the GCC, perhaps exploring neighbouring countries or Emirates they have not yet tried – and that will remain true unless and until there is a major cluster in one of these places, in which case caution will again come to the fore,” he says.

Dr Ali Obaid Al Dhaheri, UAE Ambassador to China

PATA’s Hardy suggests that if you live in a heavily infected area it might be a good time to travel.

“If you live in an area where there’s a high concentration [of coronavirus] then it may be more risky to stay at home. If you look at it more closely, this is a flu. Influenza is as common as coronavirus and there’s probably more risk of you capturing it. There are a lot of areas where cases are very minimal. There are countries where there are no cases reported at the moment. And it’s still okay to travel.

“If you look at Thailand, there’s a big focus in trying to incentivise domestic tourism; Indonesia’s doing the same. Maybe also start marketing and focusing on markets that are less risk adverse to come and travel,” he says.

Don’t worry?

PATA’s Hardy says countries should also focus on showing compassion to the Chinese for when the republic recovers. “Because when the recovery comes, they will start travelling again and remember who was there for them and if you close your doors to them completely, and when I say that I don’t mean to stop people from flying to China, but close you heart and not be there and be supportive, you might get less support from them when their recovery comes,” he says.

He also warns against the spread of misleading information on social media platforms, with people “sharing their opinions rightly or wrongly”.

He says: “People are confused and they don’t know what to do”.

Simon Allison, CEO of hotel owners’ alliance Hoftel

Instead of panicking, Dr. Wael Elamin at King’s College Hospital in Dubai says now is the time for the healthcare industry to move towards preventative medicine as opposed to concentrating on reactionary measures.

“Rather than be preventive, people are just chasing their own tails at the moment… If you think of how hospitals are set up, they are sort of an upside down pyramid in terms of how they spend their money.

“Even at the national level of countries, health expenditure on the diagnostics of infection is actually non-representative compared to other priorities in healthcare. The return on investment is much higher [with infectious disease prevention measures] because of the risk,” he says.

It’s no surprise that the film Contagion has seen its own return on investment after a massive spike in iTunes downloads and Google searches since the outbreak.

Not only will the makers of the film, which took $135 million in box office sales in 2011, make more money in 2020, but so will Abu Dhabi’s studio ImageNation, which funded the movie.

Perhaps it’s time to finance another sci-fi thriller, but, this time, it could be a documentary.

Coronavirus: What we need to know

What is a coronavirus?

Coronaviruses are a large family of viruses which may cause illness in animals or humans.  In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19.

What is COVID-19?

COVID-19 is the infectious disease caused by the most recently discovered coronavirus. This new virus and disease were unknown before the outbreak began in Wuhan, China, in December 2019.

What are the symptoms of COVID-19?

The most common symptoms of COVID-19 are fever, tiredness, and dry cough. Some patients may have aches and pains, nasal congestion, runny nose, sore throat or diarrhea. These symptoms are usually mild and begin gradually. Some people become infected but don’t develop any symptoms and don’t feel unwell. Most people (about 80 percent) recover from the disease without needing special treatment. Around  one out of every six people who gets COVID-19 becomes seriously ill and develops difficulty breathing. Older people, and those with underlying medical problems like high blood pressure, heart problems or diabetes, are more likely to develop serious illness.

Coronavirus: What we need to know

How does COVID-19 spread?

People can catch COVID-19 from others who have the virus. The disease can spread from person to person through small droplets from the nose or mouth which are spread when a person with COVID-19 coughs or exhales. These droplets land on objects and surfaces around the person. Other people then catch COVID-19 by touching these objects or surfaces, then touching their eyes, nose or mouth. People can also catch COVID-19 if they breathe in droplets from a person with COVID-19 who coughs out or exhales droplets. This is why it is important to stay more than one metre (three feet) away from a person who is sick.

Can the virus that causes COVID-19 be transmitted through the air?

Studies to date suggest that the virus that causes COVID-19 is mainly transmitted through contact with droplets rather than through the air.

Protection measures for everyone

  • Clean your hands with an alcohol-based hand rub or wash them with soap and water. Washing your hands with soap and water or using alcohol-based hand rub kills viruses.
  • Avoid touching eyes, nose and mouth.
  • Make sure you, and the people around you, follow good respiratory hygiene. This means covering your mouth and nose with your bent elbow or tissue when you cough or sneeze. Then dispose of the used tissue immediately.

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Category: #Gulf News | 2020/03/05 latest update at 3:00 PM
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