key: cord-1021103-q24zsyn4 authors: Rakshit, Bijoy title: When China sneezes, middle east states get the cold date: 2020-06-15 journal: J Public Aff DOI: 10.1002/pa.2155 sha: 87e4d6a7378839684c3d91de9f2e2556647f5147 doc_id: 1021103 cord_uid: q24zsyn4 The main objective of this study is to extend an economic perspective on the outbreak of COVID‐19 pandemic in the Middle East economies. The COVID‐19 pandemic, which was initially considered as a Chinese‐centric problem, has now affected more than 200 countries worldwide. The impact of the virus on human sufferings is unaccountable. However, economists consider the repercussion of the outbreak as contagious economically as it has been medically. Throughout this paper, we mainly address a few important research questions about the economic aspects of COVID‐19. We further highlight three critical channels through which the economic effect of the outbreak can be assessed. Finally, we explain the case of Middle East states and demonstrate the pathways that explain the economic repercussion of this global pandemic on the region. We conclude the paper by providing a few policy recommendations for the Middle East economies to fight the crisis. The novel coronavirus, which is officially known as COVID-19, initially emerged in the city of Wuhan in late November 2019. With its initial outbreak in China, the virus is now spreading widely across countries. This virus is a highly transmittable and pathogenic viral infection caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) (Sheeren et al., 2020) . With more than 1 million confirmed cases worldwide, the outbreak has brought considerable human sufferings. After China, the top six economies that are severely affected by the outbreak of COVID-19 are USA, Italy, Spain, China, Germany, and Iran, respectively. 1 Every day new cases are being emerged and reported from different countries, affecting more than 200 countries so far. In the wake of the alarming international concern over the public health emergency, the World Health Organization (WHO) has declared the outbreak as a global pandemic. As of 2nd April 2020, there have been more than 9,00,000 reported cases exceeding 47,795 total deaths worldwide (source: worldometer). Figure 1 highlights the total number of confirmed cases and mortality worldwide. In an increasingly globalized world, the impact of COVID-19 will not only be confined to the public health crisis but also will exert a devastating effect on the global economy. At the time, when China has experienced a drastic economic slowdown due to the closure of several manufacturing industries, the operations of the global supply chain have also got affected. As a result, industries across the world, regardless of their size classes, have experienced a contraction in their production. Sectors that are primarily dependent on inputs from China are mostly affected. Restrictions on both domestic and international travelling as declared by many countries have also positively contributed to the economic slowdown. The outbreak has also created market anomalies and disrupted the confidence in the consumption pattern of the consumers globally. The international financial market has also responded to the shock, and the stock market is seen to be at stake worldwide (McKibbin & Fernando, 2020) . Beck (2020) has explained three possible factors through which the effect of COVID-19 on the global financial market can be evaluated. These factors are first, the extent to which the virus will spread further and its impact on economic activities. Second, the responsiveness of monetary and fiscal policies to the crisis. Third, the regulatory reactions to the possible bank fragility. According to Beck, as there has been lesser scope to monetary policy actions to deal with the crisis as compared to the global financial crisis, regulatory reactions will play a vital role to deal with the situation. Bolton, Freixas, Gambacorta, and Mistrulli (2016) and Beck, Degryse, De Haas, and Van Horen (2018) have emphasized that the most effective way to handle the financial crises is to target relationship building with the borrowers, especially with the small firms. Fernando (2020) demonstrated seven possible scenarios regarding the outbreak of COVID-19 and its economic consequences on GDP loss. The G-cubed model comprising two additional models, that is, dynamic stochastic general equilibrium model (DSGE) and computable general equilibrium (CGE) model as propounded by Wilcoxen (1999, 2013) and later extended by McKibbin and Triggs (2018) to the G-20 economies. The economic effect of COVID-19 on economic activities in the Middle East states has been displayed in Table 1 . Apart from considerable human sufferings, the virus has caused an enormous economic loss. Every nation is relentlessly taking some precautionary measures while assessing the financial cost of this global pandemic. An important question that arises in this regard is how long and how widely the pandemic will spread and what could be the most effective containment measures. Since having an accurate prediction is very challenging on the part of the economist, Boone (OECD, 2020) provides a tentative economic approach to address these questions. OECD (2020) has demonstrated two cases, that is, best-case scenario and downside scenario to describe the effect of COVID-19 on economic activities. Under the best-case scenario, it has been assumed that based on our available knowledge until very recently, the spread of the virus will contain mostly in China with its minor outbreak in the neighboring countries. In such a scenario, there will be an emergence of a global economic slowdown in the first half of 2020 and post the effect, the economies across the world will recover eventually. Figure 2 necessitating more containment measures. Figure 3 depicts the case of a downside scenario. Boone (2020) argues that under the best-case scenario, the slowdown in growth will majorly occur to China as a result of the contraction in demand. Eventually, it will have a global impact on the world equity market and commodity prices. The economic impact of the pandemic and the measures taken to curb the spread will be associated with the adverse supply-side shock, and gradually, this shock in supply-side will get reflected in demand-side. There will be an abrupt decline in consumer confidence as they have foregone their work hours. Restriction on travels will hit the tourism sector, a sharp disruption in the financial industry and hence less cash-flow coupled with poor investment decisions by firms. Boone (2020) identifies three relevant channels through which the pandemic can affect economic activities across the countries. The first important channel is the supply channel. With the disruptions in the production unit, closures of factories irrespective of sizes, cutbacks in the service sector, especially the financial sector, can result in a significant disruption in the global supply chain. As a consequence of the outbreak, there will be a fall in demand in the travel and tourism sector, the decline in the education services, decline in trade, contraction in the demand for entertainment and leisure services. The third crucial channel is the confidence channel. Amidst the global uncertainty, there is a fall in the confidence pattern of consumers as there is less consumption of goods and services. To contain the spread, several containment measures have been adopted by several countries, which are likely to affect the consumer and financial market confidence. In a strongly connected world, the impact of this highly transmittable virus will not only be confined to a few numbers of morbidity and mortality. At the time, when the Chinese economy is already observing an economic slowdown, caused by the sudden disruption in the Apart from the public health crisis, the COVID-19 will affect the economy of the Middle East through the following channels. per day year-on-year in the first quarter of 2020. The risk is gathered momentum as the coronavirus crisis is inducing many oil-producing countries and OPEC+ to take into account an additional cut in the oil production of 600,000 barrels a day as an emergency measure on the top of the 1.7 million barrels a day already pledged (International Energy Agency, 2020). 6 The impact of the COVID-19 will also depend on the extent the cross borders are connected to China. Middle East economies are exposed to China through a robust supply chain, tourism, and other travel-related services. This is why it has been anticipated that COVID-19 will have an impact on the travel and tourism sector in the Middle East states. However, Arezki and Nguyen (2020) China is expected to be limited. A loss in travel and tourism in the Middle East will further contribute to depress the oil prices. On the Asymmetry of Global Spillovers: Emerging Markets Versus Advanced Economies(World Bank Policy Research Working Paper WPS8662) Novel Coronavirus hurts the Middle East and North Africa through many channels. A CEPR Press eBook 2020) 6 Finance in the times of coronavirus When arm's length is too far: Relationship banking over the credit cycle Relationship and transaction lending in a crisis Tackling the fallout from COVID-19. A CEPR Press eBook(-CEPR Working paper) A slowdown of China's economy and its impact on the demand for tourism services Digital platforms and the demand for International Tourism Services(World Bank Policy Research Working Paper WPS9147) The global macroeconomic impacts of COVID-19: Seven scenarios(CAMA Working paper). The Australian National University (forthcoming) Modelling the G20. Centre for applied macroeconomic analysis The theoretical and empirical structure of the G-Cubed model A global approach to energy and the environment: The G-cubed model COVID-19 infection: origin, transmission, and characteristics of human coronaviruses How to cite this article: Rakshit B. When China sneezes, middle east states get the cold