A technical note published by the United Nations Conference on Trade and Development (Unctad) on Thursday has shone a light on the potential extent to which the coronavirus, or Covid-19, may impact on global manufacturing and exports.

Over the last two decades, China had become the world’s largest exporter and an integral part of global production networks, including for automotive components, electronics and medical equipment, Unctad stated.

However, China had seen a dramatic reduction in its manufacturing in the last month, owing to the impacts of Covid-19, which was first seen in patients in the Asian nation in December and has since been declared a global pandemic.

China’s purchasing manager’s index fell by 22 points to 37.5 in February – the lowest reading since 2004. The drop implied a 2% reduction in output on an annual basis.

This 2% contraction in the country’s output has a ripple effect through the global economy and has, so far, caused an estimated drop of $50-billion across the world.

Indicators on shipping had also suggested a reduction in Chinese exports for the month of February.

Container vessel departures from Shanghai were substantially lower in the first half of February with an increase in the second half. However, the Shanghai Containerized Freight Index continued its decline, indicating excess shipping capacity and lower demand for container vessels.

The most affected sectors included precision instruments, machinery, automotive and communication equipment. Among the most affected economies are the European Union, the US, Japan, the Republic of Korea and Vietnam.

“Even if the outbreak of the virus was contained mostly within China, the fact that Chinese suppliers were critical for many companies around the world implied that any disruption in China would also be felt outside of the country’s borders, across regional value chains,” said Unctad.

Japanese Finance Minister Taro Aso had noted in an earlier public address that the spread of the virus was a public health crisis that could pose a serious risk to the macroeconomy through the halt in production activities, interruptions of people’s movement and cut-off of supply chains.

Unctad noted that while there was still uncertainty about the impact of Covid-19 on China’s productive capacity, the most recent statistics pointed to a significant downturn.

The full effect of the virus on global value chains would become clearer in the coming months.

However, one question of importance was how a disruption in Chinese supply of intermediate inputs would affect the rest of the world. Based on the analysis of this note, Unctad said that two key points could be made.

“First, even if the outbreak of coronavirus was contained mostly within China, the fact that Chinese suppliers were critical for many companies around the world implied that any disruption in China would be also be felt outside China’s borders; European, American and East Asian regional value chains would be disrupted.

“The estimated global effects were subject to change depending on the containment of the virus and or changes in the sources of supply.

“Second, it was expected that the spillover effects of a disruption in Chinese supply would be diverse across economic sectors and dependent on the geographic localisation of the virus outbreak and of the containment measures within China,” Unctad explained.

For example, the automotive industry’s intermediate exports might fall relatively more as the industry was geographically localised in the region where the outbreak of Covid-19 occurred.

Importantly, because of a lack of information, Unctad said its technical note did not consider this second aspect.

Once sectoral data on Chinese output was available, the likely effect on the various global value chains would become clearer.