Crisis in China, a global recession: This is how the Corona could hurt our pocket

Following the outbreak of the Corona virus, senior economists warn that the Chinese economy could worsen, which could turn the health crisis into a global economic crisis and lead to price increases in the country as well. Washington's economic axis: "As closure and containment increase, the damage to the economy will increase"

Crisis in China, a global recession: This is how the Corona could hurt our pocket

The eyes of the heads of economic companies in Israel and around the world are married for the coming days, when it will be decided whether the Chinese economy will return to normal or whether the stagnation and closure in the country will continue, due to the fear of the Corona virus and the fear of adherence. The country has extended the Chinese New Year by tomorrow, so thousands of factories in China are expected to return to work, but Israeli importers are already being notified about the postponement of the factories for another seven days. Washington economic axis Eran Nitzan warned in conversation with Walla! NEWS that if the Corona virus crisis lasts for more months, it will lead to a global recession that could also hurt Israel. In the meantime, Israeli companies are already looking for other avenues that will bring with them rising prices to roll on the consumer.

On January 30, the World Health Organization declared an international emergency following the spread of the Corona virus in China and abroad, resulting in the deaths of 908 people in China, one of the world's largest economic powers. Which has led the Chinese factories, connected to dozens of countries in the world, to work in an emergency format and the people in China to shut themselves up in houses until further notice.

In China, they decided to postpone the Chinese New Year until February 10 to allow people to celebrate it, thus effectively disabling the economy. Many countries have banned the entry of flights from China, including Israel, and the closure of land ports. Airlines like British Airways, Delta United Airlines and Lufthansa have canceled flights to the country. Russia has closed all its borders with China to prevent workers from moving into it.

Merchants wearing masks at Kunming City Trade Center, Yunnan Province (Photo: Reuters)

Masquerade merchants at the Flower Trading Center in Kunming Town, Yunnan Province, February 10, 2020 (Photo: Reuters, Reuters)

The outbreak of the virus has created a very big panic not only in the health aspect, but also in the economic aspect, as many manufacturing enterprises and high-tech companies relying on imports from China are now looking for other avenues to import raw materials and products needed for production into Israel. At the same time, there is a major injury in tourism, as many people cancel trips abroad in general and especially in the East, especially after the travel warning issued by the Ministry of Health and included a number of countries outside China.

According to the Ministry of Economy and the Israeli Chamber of Commerce, Israel imported goods worth $ 19 billion last year, and exports from Israel to China were worth $ 4.5 billion. In the same month last year, imports from China totaled $ 900 million and exports stood at $ 260 million, which, according to the Ministry of Economy, continued paralysis in the Chinese economy would cause 40 percent of this month's exports and imports. "It's all about when the crisis in China will continue," explained Ohad Cohen, head of foreign affairs at the Ministry of Economy. "If China does not resolve the crisis in the coming month, the Israeli economy will be hit, too. The Chinese economy accounts for about 15% of the global economy and 17% of the world trade."

Cohen elaborated that "just about every sixth commodity comes out of China, whoever makes the account understands how significant it is." According to him, "Imports from China to Israel consist of raw materials, intermediate products for industry, materials such as consumables for hospitals, electronics and consumer products." He added that "China is in the chain of consumption of many companies and if the crisis continues over time, it could hurt them."

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"If the crisis continues for months, the harm to global companies will be difficult"

Washington economic axis Eran Nitzan (Photo: Treasury)

The big question that is plaguing the economic world is what will happen this week and whether the Chinese will return to work, if shuffled, it will also signal its presence on the ground. "The Chinese have extended the Chinese New Year holiday until tomorrow, and now it has to be seen whether they will return to work or not," Ohad Cohen added. "The next two weeks will set the tone for where the wind is blowing, whether the Chinese factories will return to full-time or throughput that will enable supply retention, or whether workers will continue to shut down homes and then there is likely to be a problem," he explained. He said, "Israeli companies are waiting to see what happens with the Chinese, but at the same time looking for alternative sources." In addition, Cohen also warned of rising prices because raw material demand has risen.

"As the virus's closure and containment increase, the damage to the Chinese economy will increase," said Washington's economic spokesman Eran Nitzan. "In our global world, problems of the Chinese economy do not add up to China. It is an economy connected to dozens of countries as the most significant export and import destination. The slowdown in China has many global meanings, foremost in the United States."

"China is the third destination for tourists to the United States, even when it comes to the activities of American companies working in China, Starbucks has 3,000 branches closed in China, thousands of Ix Max movie theaters now closed in China, the value of shares of various companies is only declining," Nitzan explained. "A fortnight is something that can be overcome, but if China enters the one-month event that will hurt the global companies."

Passengers at Hong Kong train station (Photo: Reuters)

Passengers at Hong Kong Railway Station, February 10, 2020 (Photo: Reuters, Reuters)

Nitzan added that the third circle that is going to be hurt is the technology companies. He said, "50% of the technological components of the products manufactured in the United States are sourced in China. It's no substitute," he explained. "It's impossible to change China's markets as a source of electronic products in one day. It's a matter of legislation and regulation." He stated that "Today, hundreds of parts of Apple's new headphones are dependent on imports from China and the existing stockpile will be enough for another two weeks. As the weeks go by, more and more companies dealing with City appliances, medical devices and medical equipment depend on a continuous supply chain export."

According to Nitzan, Israel is a small target in the global arena, and therefore it is subject to global fluctuations. "If the epidemic continues to expand, it will cause global economic damage. If we see the quarantine continuing until the end of the quarter, Israel will also hurt the situation and then no one can reach Israel. Only she will have to help herself in dealing with a global slowdown." He said the key principle that requires the government to cope is not only in the health aspect, "but also to prepare for itself the reserves and capabilities of a low deficit to cope with a global recession."

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Chinese President Xi Jinping talks to civilians about the corne virus (Photo: Reuters)

Chinese President Xi Jinping talks with civilians about the Corana virus, February 10, 2020 (Photo: Reuters, Reuters)

Nitzan made it clear that the current situation constitutes a warning light for Israel against the deficit, and made it clear that it must be in control. "We do not know how the Corona virus will develop and whether it will drag the world into recession," he explained. "Israel will have to be equipped with all the capabilities to deal with slowdowns, know how to stream into financial markets, encourage going out to work during a recession, and so from now on, it has to prepare itself for the worst-case scenario." He added that "small investors will be obliged to help themselves, increase public payments, establish aid programs. We have seen this in previous crises and so it requires Israel to be in control."

In addition, the Washington economic axis claimed that the Corona virus caught China at a problematic time, as this year it found itself with a 6% slowdown in GDP growth in China, "This is a very low product for China. In this respect, the Corona virus could not come at a worse time. The event will continue for several months, the Chinese economy will not be able to grow by more than 4% and this will have far-reaching consequences for the Chinese state, so the question that will occupy us all will turn into a health and economic question, even a political one. " He made it clear that "it is definitely a thing that comes to the Chinese economy when it shows signs of weakness."

Beijing subway passengers with masks on their faces (Photo: Reuters)

Beijing subway passengers with masks on their faces for fear of Corona virus on February 10, 2020 (Photo: Reuters)

At present, some 30 Israeli companies have already turned to the situation room that opened the Manufacturers Association due to the distress and problems of importing raw materials from China, due to the disruption of work in factories. "Dozens of companies have been approached by us," said Elad Netzer, director of the special situation room that opened during the Corona crisis. "Especially companies that regularly use raw materials from China and Asia."

He added that "we are looking for alternatives, with the main place to look for is Turkey." He said, "We are trying to help them in connecting with alternative companies through the Ministry of Economy. A lot of inquiries have come in the textile, metal and construction sectors." According to the Manufacturers Association, suppliers in China are paralyzed because the ports are not working and therefore it is impossible to exclude materials from the country. "We are concerned about reducing production activity in Israel," Netzer added.

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"80% of my imports are from China." Importer Roy Rozenek

Israeli companies are already looking for other avenues to import raw materials for production, and supply to various high-tech companies, with the interior currently being turned to Europe, and with it price increases expected to roll into the hands of consumers. Roy Rozank, a member of the Bureau of Trade and Importer from China, said that in Europe, they already realized that demand was coming from China's shortage, and were using any momentum to raise prices. "80% of my imports are from China," Rozenek said. "I have supplements that I have been working with for 25 years, unfortunately and unfortunately for the whole world. The corona virus does not end in the health aspect, but also in the economic aspect."

He explained that "Today, when I turn to companies from China, they tell me they don't know if orders can be started, they should have started on February 1 and rejected it because of the tenth of a month virus today, but because they have a law in the country that bans them To unite above a certain amount of people in factories, they cannot operate them. " He said, "What should have opened today, postponed the opening for the 17th." Rozenek added that he had already received an email from the suppliers, stating that they were postponing the factories to February 17.

Europe is taking advantage of the momentum for price increases

Rozenek, like many importers, already has to recalculate and think about new suppliers from other countries, probably in Europe. Rozank warned that "the Chinese are not people who forget, write on a small notebook, if today I cancel them orders, in a month or two they will remember it." He said, "They value people with loyalty in business and on the personal side." Rozank left the orders with the Chinese, and at the same time addressed the European market, "They are not idiots," he said. "They rubbed their hands and said we understand that you are now coming back to us, but you have to understand that we will not be able to meet the Chinese production volume, so the price increase has also increased at least 50% more expensive than I pay today in China, but when there is no choice," .

According to Rosenek, the Israeli consumer is expected to absorb this price increase in Israel. "The situation in the Israeli economy is in bad shape anyway, no importer will absorb 50% of price increases. Whatever the case, it will roll 50% on the importer and 50% on the consumer." He explained that "I have to give a solution to my customers in the country. They have to run the production line." He added that "I expect prices to rise, there will be a flow to other countries, trade between China and Israel will drastically decrease and it all depends on the Chinese government's conduct, if it fades we can absorb it for a month or two and then we can float above water, but if the situation continues We will import products from Europe where prices are more expensive, and we can't embody that on us, we will have to find other options. "

Citizens wearing masks in Shanghai (Photo: Reuters)

Citizens wear masks for fear of becoming infected with the Corona virus in Shanghai, China, February 9, 2020 (Photo: Reuters)

The average time from ordering to product arrival is three months. Now, with the backlog of orders stuck, it is unclear when Israeli company owners will receive their orders. "Think how many orders are stuck to them," said Rosenc. "The factories do not produce, cannot carry out maritime transport. There is very great uncertainty and those who will celebrate it are the Americans and Europeans. I received a message from France and Italy that they told me welcome, we know why you came, but our price went up."

President of the Manufacturers Association, Dr. Ron Tomer said: "The Corona virus is beginning to affect the economy and demonstrates that the State of Israel must not lose productive and economic independence and we must take care to establish an independent industrial infrastructure that will meet that independence in times of political, security or medical crisis." Because "we are a country that has become addicted to cheap imports and now this addiction is starting to hurt. If this trend continues, the Israeli consumer may run into empty shelves. "