Even now, months after the first appearance of Covid-19, the medical world knows only so much about it—and that uncertainty contributes to fears about what might happen. Businesses, markets, and people with responsibility would like the disease to follow the pattern of recent past pandemics. SARS in 2002, the H1N1 influenza of 2009, and MERS in 2012 all ran their course faster than expected, allowing markets, economies, and societies to recover quickly. The best that experience can offer is perspective, and perhaps some hint of the future.
Unlike the rest of the world, though, China may face lasting problems as a result of this disease. The virus is causing the global economy considerable harm, and financial markets are showing an increasing sense of panic (with an oil-price war between Saudi Arabia and Russia adding to the woes). China’s economy likely is already in recession, whatever Beijing’s ever-optimistic official figures may show. The near-collapse of sales in China has set back exports into that country from everywhere in the world and, in so doing, spread economic pain broadly, as has the complete halt to what not too long ago was a flood of moneyed Chinese tourists. Production shutdowns in China have interrupted the flow of materials and parts to producers around the world, slowing and in some cases shuttering their facilities. The Group of 20 trading nations estimates that the disease has already cost the world economy $1 trillion in production. It would not be a surprise to see slower-growing economies—notably Japan’s, and several countries in Europe—join China in a quarter or more of real economic decline.
The popular imagination has extrapolated this matter into an economic, financial, and societal disaster. People have begun to strip store shelves to stockpile necessities, and some media outlets make it seem as if the world will soon experience something akin to the Black Death that devastated Europe in the Middle Ages. Anything is possible, of course, but it might help to note that the Black Death happened 700 years ago. It also might help to remember that the great influenza pandemic of 1918, though it killed more in less than a year than died in all of World War I, only briefly delayed the huge economic and societal recovery of the 1920s.
Dismissing extremes, however, does nothing to downplay the seriousness of this emergency. Without enough information to assign firm likelihoods, one of two paths would seem to set prospects going forward. More inviting of the two is the one followed by the SARS pandemic and other outbreaks of recent years. The second suggests a longer shadow, of the sort cast by HIV and the AIDS epidemic.
Should the Covid-19 virus follow the first, global economies and markets could expect relief this spring. In each of these previous events, initial fears of overwhelming death tolls dissipated quickly, and containment efforts began to take effect. Within months, most economies were well on their way to complete recoveries. In the present case, such an outcome would suggest a mixed picture in the spring quarter and the building of economic momentum during the second half of the year. The Federal Reserve’s recent interest-rate cuts would accelerate the momentum.
When the public first became aware of AIDS in the 1980s, many felt some degree of panic and uncertainty about its transmissibility. Unlike SARS and other pandemics, AIDS did not dissipate; it has remained and become a part of life since, like cancer or heart disease. If the Covid-19 virus were to follow this pattern, then people would not get outright relief but would likely temper their fears nonetheless, allowing preexisting economic and social arrangements to reassert themselves more gradually. Economies and markets would, in time, return to the underlying growth patterns predating the disease. Using this history as a guide, the recovery would probably reach completion sometime in 2021. Again, the Fed’s recent rate cuts might speed up this process. Either way, some sort of recovery in the near- to mid-term seems likely, if not assured.
China’s economy, however, may have longer-term problems. Even before the coronavirus emerged from Hubei, rising wages and the trade war with the United States had already convinced many producers to diversify their operations outside of China. Domestic Chinese firms had begun to move out, finding lower labor costs in places like Vietnam and skirting the new American tariffs. American producers had begun to move away for much the same reasons, and to temper their willingness to source supplies and parts from China. Producers in Europe and Japan have also pursued such steps. Though firm statistics are not yet available, Covid-19 has doubtless reinforced these trends. The longer the disease lasts, the greater this pressure will become.
To minimize this effect and slow the trend that began before the virus complicated things further, Beijing needs a quick rebound. The government has tried to force one, ordering the three state banks to advance more business loans, lowering taxes on small businesses, and offering special low rates on loans to small businesses. Such gestures might accelerate a recovery should Covid-19 dissipate quickly, but they can do little if the disease lingers. Without a rapid recovery, China’s economy faces headwinds. The world may be able to count on some sort of recovery, whether rapid or gradual; China’s prospects are more constrained.
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