Cascading Economic Impacts of the COVID-19 Outbreak in China

In the wake of a deadly COVID-19 outbreak that started in Wuhan, the capital of Hubei Province, the Chinese government imposed quarantines and other restrictions on movement to prevent the spread of illness in China. Concerns about a new respiratory virus were evident prior to December 31, 2019, when Beijing first notified the World Health Organization (WHO) of the outbreak. Chinese officials did not take decisive action to contain its spread until late January. On January 23, transport linkages from Wuhan were suspended, followed by the lockdown of 12 other cities in Hubei on January 24. Beyond Hubei, provinces including Zhejiang, Liaoning, and Jiangxi also placed official lockdowns on residential areas as localities across China implemented formal and informal restrictions on movement.These restrictions quickly and dramatically shut off the flow of people returning from their hometowns to their places of work after the Lunar New Year, China’s largest annual holiday. Store closures, authorities’ restrictions on movement, and public fears of contagion drastically reduced in-person transactions in routine and holiday spending, resulting in retail sales plummeting by 20.5 percent year-on-year according to official statistics.

Though these containment measures’ immediate economic impact fell on consumer demand, as more data are released, major disruptions in supply chains are becoming clearer. The slow trickle of migrant workers returning from their hometowns back to work sites after the Lunar New Year led to large manufacturing and logistics labor shortages that arrested the production and flows of goods within China and between China and other countries. With some notable exceptions, China’s economic activity came to a standstill. China’s National Bureau of Statistics reported a 6.8 percent contraction in first quarter GDP growth in 2020. China’s annual 2020 GDP growth forecasts range from 3 percent (Goldman Sachs, March 17) to 1.2 percent (International Monetary Fund, April 14) to 1 percent (Nomura, March 31). Shocks to both supply (e.g., manufacturing output) and demand (e.g., consumer spending) have been felt outside of China, even before the virus spread internationally.

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