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Homeland Security

British Officials Plan for Coronavirus, as Economists Divided on Impact

By Jamie Dettmer February 09, 2020

The British government is drafting contingency plans to cope with factory shutdowns in China spurred by the coronavirus outbreak.

British officials are adapting plans they drew up in readiness for a no-deal Brexit amid rising fears that China will have to close more cities and shutter factories as the virus spreads, causing a shortage of parts and manufactured goods.

Among the worries, officials say British, are short supplies of life-saving medical equipment and components for business supply chains. British companies are being urged to scout out alternative supply sources. Several firms have warned that they can cope if the crisis lasts only a month or so but will face severe logistical problems if the crisis is prolonged.

Britain's tourism industry is already being affected by the virus. China has banned tourism departures indefinitely and hotels are facing mass cancellations, including those around London's Heathrow Airport, which are normally packed with Chinese tourist groups. Joss Croft, head of UKinbound, an industry trade association, ok? said some tourism companies are facing major cash flow problems, and on Sunday urged the government to help them, as "once these businesses are gone, they are gone."

Sales in Britain of luxury goods have fall off precipitously in the absence of Chinese tourists, brand leaders report.

Fashion brand Burberry has said its sales have also dropped in China, and it has been forced to close 24 of its 64 stores in China after seeing an 80% fall in sales. Nike, Adidas and Puma have also closed stores across China.

Long-term impact feared

The British economy isn't alone in suffering from the coronavirus outbreak. There are also rising concerns about the longer-term impact on the global economy, say analysts, who are bracing for the World Health Organization to declare the outbreak a pandemic, the first time it has announced such an emergency in more than a decade.

Economists at Morgan Stanley say that while the global economic cycle could be disrupted by the virus, "it should not derail the global recovery." Bloomberg Economics says the fallout of the coronavirus will drag down growth of euro-area gross domestic product by between 0.1 and 0.2 percentage points in the first quarter, with the Netherlands and Germany the most affected, followed by Britain.

Others, though, are less sanguine.

Oxford Economics, a forecasting group in Britain, is predicting a "spill over significantly to the rest of the world" because of disruptions in international supply chains. It predicts that the "tentative" recovery in global manufacturing will be halted and that this year industrial production will rise less than 1%, the weakest growth since the financial crisis of 2008.

Some analysts point out that European economies were already faltering before the appearance of the coronavirus, with growth across the bloc slowing to almost zero. China is Europe's second largest-trade partner. European Central Bank President Christine Lagarde warned last week that the coronavirus outbreak had added a new layer of economic uncertainty and could potentially damage global growth.

Fiat Chrysler says the impact of the coronavirus epidemic could halt production at one of its main European car plants within a month because of supply-chain disruptions. Fiat's chief executive, Mike Manley, told Britain's Financial Times last week there was one "critical" supplier of parts that was putting European production at risk.

Economists says the full economic impact can't be known until the virus has peaked in China and elsewhere. Until then there will be uncertainty.

Health officials and virus experts are divided on how long the crisis will last and whether it will turn into a global pandemic.

Peter Piot, a London School of Hygiene and Tropical Medicine microbiologist, told British media that he is "increasingly alarmed" by the quick spread of the virus and was expecting WHO to declare a global pandemic. A WHO-led international team investigating the outbreak will leave for China Monday.

Piot predicts the virus won't peak for another month or so.

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