REUTERS/Nexu Science Communication

Impact of coronavirus on global economy. What awaits Ukraine

Coronavirus continues to spread around the world. It inflicts an insidious blow not only on the population of about four dozen countries, but also affects the global economy unprecedentedly. International auditors predict pessimistic scenarios if it comes to a pandemic. UNIAN learned what awaits Ukraine in such conditions.

REUTERS/Nexu Science Communication

Coronavirus continues to sow fever across the world. Despite the statement by the director-general of the World Health Organization that the peak of the epidemic in China - the center of the outbreak - has passed, the new "21st century plague" is not about to recede. The number of patients in China who have contracted COVID-19 continues to grow. Over the past day, 71 people have died from pneumonia caused by the new type of virus in China, the number of infected has increased by 508 people. In general, in the Celestial Empire, COVID-19 was discovered in 77,658 patients, 2,663 people died, while 27,323 recovered. To this day, million-plus cities are blocked in the country, hundreds of enterprises have ceased operations.

Despite all the measures taken by the Chinese side, the virus continues to spread beyond the PRC. Cases of infection were detected in 36 countries, with the number of infected having reached 2,438. Thus, the total number of infected around the world exceeded 80,000.

The second largest outbreak of the virus is in South Korea, where 893 cases were confirmed and nine people died. The infection also got to Europe. An acute outbreak has been reported in Italy. A total of 230 cases were confirmed and seven patients died. Ten cities in the northern regions of Lombardy and Veneto are isolated. Authorities asked around 50,000 residents to stay at home. The so-called "red zone" included the municipalities of Va'Euganeo and Codogno, Castiglione d'Adda, Casalpusterlengo, Fombio, Maleo, Somalia, Bertonico, Terranova dei Passerini, Castelgerundo and San Fiorano. Authorities have banned entry to or exit from the outbreak areas. Schools, shops, and museums have been shut down, while government agencies operate in a limited mode. The police and, if necessary, the armed forces will be empowered to enforce emergency procedures. Non-compliance with the measures may be punished in accordance with the article of the Criminal Code, which provides for a fine and arrest for up to 3 months.

Neighboring countries of Italy said that they did not rule out complications and were already preparing for the adoption of stringent isolation measures.

For Ukraine, the situation is complicated by the fact that quite a lot of our citizens work in Italy, who may wish to return to their homeland. In addition, Italy is one of the leaders in Europe in terms of tourism. Therefore, migration is quite difficult to control.

Virus strikes economies

Everything that happened could not but affect the global economy. Oil and gas prices collapsed to an annual minimum, only gold quotes went up. This is how investors react to news about the spread of coronavirus. American stocks, Japanese and European stock indices are sliding. The base index of Australia and New Zealand fell especially.

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The International Monetary Fund has already made a disappointing forecast – coronavirus will slow down the global economy by 0.1 percentage points, to 3.2%. But this is at best if the Chinese economy returns to normal in the second quarter. That is, the impact on the global economy will be relatively minor and short-lived.

Meanwhile, as noted by IMF Managing Director Kristalina Georgieva, the Fund is considering more pessimistic scenarios, according to which the spread of the virus will continue longer and more globally, and the consequences for the economy will be long-lasting.

The IMF is ready to help, including through the Disaster Protection Fund, which can provide grants to ease the debt burden for the poorest and most vulnerable members, Georgieva emphasized.

The impact of the coronavirus on the global economy is further complicated by the fact that it is already on the verge of a new wave of crisis. It is predicted for the second year in a row by all international institutions, recording a slowdown in growth in all sectors.

What awaits Ukraine

So far, in Ukraine, no patients with coronavirus have been identified. The authorities are taking measures to control the situation inside the country, including those coming to Ukraine. Prime Minister Oleksiy Honcharuk assured that everything possible was being done for a prompt response.

Minister of Economic Development, Trade and Agriculture Tymofiy Mylovanov assures that there are no negative consequences for the Ukrainian economy due to the coronavirus epidemic in the world.

According to him, the ministry is monitoring the situation, and the export of goods from Ukraine to China, despite the spread of the disease there, continues. "We have a certain export, we sell goods to China. But most of the goods – there is oil and other food products – they will not be affected," the minister emphasized.

Meanwhile, a worrying note was still heard in his words: "Ukraine continues to import certain consumer goods from China, although in general, imports of Chinese goods in particular have declined. On the one hand, this may somehow affect the economy, but on the other hand, it allows Ukrainian businesses to enter this niche and develop. That is, it is an opportunity."

Another opinion is shared by Anastasia Holovach, senior economist at the World Bank in Ukraine. She believes that the situation in China, where the coronavirus epidemic broke out, could reduce the flow of investment in Ukraine. Last year, our country received more than $4 billion in portfolio investments, and now the prospect of this trend continuing is in great doubt.

"The passivity of investors has become one of the reasons for the low results of the latest placement of government bonds by the Ministry of Finance. If this trend continues, it will affect the exchange rate of the national currency," Holovach said, adding that the World Bank does not expect significant risks for the global economy due to the coronavirus epidemic, provided that in a month the wave of diseases will decline.

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Member of the NBU Council Vitaly Shapran draws attention to the fact that the first measures taken to counter the coronavirus epidemic in Italy show that the virus inflicts a big blow on the economic activity of the population due to quarantine. He admits that the effect can be far greater than we can imagine.

"It is difficult to forecast here, since the PRC economy is far from being in good shape, it needs only a small push for problems," the expert said. The leading analyst of the Institute for Socio-Economic Transformation Slava Cherkashyn believes that most likely the pressure on the economy from the coronavirus will be short-term and will not have a serious impact on the recovery of the domestic economy.

"The only factor is Chinese imports, from which VAT is collected at the border. This could be discussed, and potentially (the volume amounted to $9.1 billion last year). In general, a gap of $150-190 million in tax is not critical, but sensitive, especially against the backdrop of a total budget failure by the customs authorities. The second aspect of the slowdown in Chinese imports is the possible disruption in the timing of supplies of equipment, goods and the consequences for Ukrainian companies with established production chains from China. Other special risks have not yet been observed," the expert emphasized.

President of UNIVER Investment Group Taras Kozak noted that while the situation with coronavirus is unclear, therefore several scenarios are not ruled out, including for Ukraine.

"If a few days ago it was believed that the epidemic in the world was on the decline, in particular, in China the number of those healed exceeded the number of new cases per day, then over the past 2-3 days the situation has changed significantly. New mass cases in Japan and Italy increase the threat of a pandemic. In this regard, two scenarios for Ukraine can be distinguished. If our country does not have an epidemic, that is, if there are no cases of illness, or if there are several cases and it is possible to localize the problem, then the potential losses for the economy will consist only in a decrease in global demand for Ukrainian exported goods. We can assume that this scenario is conditionally positive, there will be no serious consequences for Ukraine.  If the epidemic spreads in the world and there are massive cases in Ukraine, which will result in quarantines and shutdowns of companies and enterprises, then, in this case, a reduction in GDP growth is possible," the expert said, adding that most likely it won’t result in the fall of the Ukrainian economy, even in the worst case scenario.

Even if the direct effect of coronavirus for the Ukrainian economy is insignificant, secondary effects cannot be ruled out. They will depend on how markets react to what is happening. Moreover, there is a risk of deterioration in the global financial markets, this year as well. And for Ukraine this year is the year of peak payments on external debts.

Nana Chornaya

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