Special Report

Coronavirus coverage: COVID-19 and SARS – dissecting the fallout

  • Multi Asset
  • Consumer
  • Global

This is the fourth article in Third Bridge Forum's series delving into the global ramifications of the catastrophic coronavirus – to which, seemingly, no industry is immune.

When COVID-19 erupted, comparisons with severe acute respiratory syndrome (SARS) often surfaced. They are both coronaviruses – a category of viruses that can sometimes move from animals to humans – that originated in China, spread worldwide and damaged various industries. The first instances of SARS were reported in late 2002 in Guangdong province. Then, as one specialist Third Bridge Forum interviewed detailed, it “broke out on a large scale from March to April 2003 and subsided gradually from May to June 2003”. Calculations show that SARS swept close to USD 40bn from the global economy in 2003, while China’s GDP fell from 11.1% YoY in Q1 2003 to 9.1% for Q2.

Learning about SARS’s impacts on different countries and sectors can be useful for understanding what will happen during the current COVID-19 pandemic. However, the global economic situation has changed markedly since then. For starters, China’s economy has transformed and its increasing political and financial heft has prompted many commentators to ask if the country is the next global superpower. For instance, China’s share of global trade leaped from 5% in 2003 to 11% in 2018. During the same years, GDP in current terms grew from USD 1.66tn to USD 13.61tn. It is a leading manufacturer of several commodities and vital to numerous supply chains. Even if COVID-19 had been contained to just China, its impacts would still have reverberated around the world.

Manufacturing as a whole did not seem to be as heavily impacted as other sectors during SARS. But that’s not the case now, as covered by a previous article in this series. This could be down to the fact that China, and Hubei itself, the province where the virus started, are manufacturing powerhouses. In 2018, Hubei had the seventh-largest GDP in China, and its secondary industry expanded by 6.8% to RMB 1,708.9bn – a continuation of the strong upward trajectory recorded in the past two decades. In China’s 13th Five-Year Plan, advanced and emerging manufacturing industries were set to be developed in Hubei. It is home to a tenth of China’s carmaking capacity, and a number of chemical producers are based there too. Although Chinese companies are starting to reopen, labour shortages and the movement restrictions still in place in some parts of the country could prove impediments to realising full capacity. 

Tourism faced major disruption, and the importance of this sector for many Asian countries cannot be understated. Its share of GDP stood at between 4% and 13% in the region during the SARS outbreak. Consequently, a pronounced downturn hit the industry. The drop in tourism receipts was estimated at 25% for China and more than 40% for Hong Kong and Singapore. Meanwhile, Hong Kong saw its hotel occupation rate diminish to 15% in May 2003 rather than the usual 82%. And while these events are also playing out during the COVID-19 pandemic, the acceleration of globalisation is undoubtedly a major force behind its more rapid dispersion. At the time of writing, there are over 400,000 confirmed cases and 18,000 deaths in more than 160 countries. By contrast, SARS resulted in over 8,000 cases and about 800 deaths across 26 nations. 

With more countries affected, more companies are suffering. Although airlines dependent on routes within and into China were initially affected, operators globally are now reeling. Many are grounding flights, including Ryanair, Singapore Airlines and Etihad. Meanwhile, numerous countries have closed their borders, such as Germany, Spain, New Zealand and Australia. Another major difference between the two outbreaks was highlighted by a specialist we interviewed. “The Chinese market is much more mobile, so the SARS virus was contained much more efficiently because the majority of Chinese were not travelling at the level and in the volume they are now.” The tourism sector in countries dependent on Chinese visitors will be facing a tough year. 

With people not wanting to leave home for fear of infection during SARS, industries depending on face-to-face interaction suffered. In April 2003, Hong Kong’s retail sales fell by 15.2% YoY, with luxury sales dropping by 44%. China’s retail sector was also hit hard, with growth in May sitting at 4.3%, down from 10% at the beginning of the year. There’s a similar story today. With “lockdowns” now in place in the UK and Italy, among other countries, the high street is suffering. Figures from the UK show that in February sales declined by 3.6% and 6.4% for department stores and restaurants respectively. However, one integral difference is the proliferation of e-commerce since SARS. Online sales are booming: during one week in Italy, sales of consumer products shot up by 81% YoY. Moreover, digital content providers, like Netflix, online gaming platforms and takeaway services are seeing more uptake.

Sitting at the intersection of travel and retail, airport retailers were also impacted. In one Interview, a specialist outlined the mitigating steps taken: “what retailers did was work with airport operators and renegotiate, temporarily, concession relief based on the fact that the business conditions were so dynamically different than how they set themselves out to.” However, it’s a “radically different scenario” today, with closed borders around the world, while “the luxury industry [has] built a significant portfolio around the reality of the strength of China”. 

Although SARS was shorter lived, it wrought havoc on many businesses. Moreover, as pointed out by the Brookings Institute, it is incredibly complicated to calculate the effects of that outbreak, as “there are linkages within economies across sectors and across economies in both international trade and international capital flows.” But this doesn’t mean we can’t look at what happened to consumer behaviour and commercial activities as a whole – and extrapolating these findings could be instrumental for industries looking to develop coping mechanisms for COVID-19’s fallout. 

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