Coronavirus And The Global Economy

Is The World Prepared For Economic Shocks? 

Angela Merkel, The Chancellor of Germany, this morning has made a statement that is sending shock waves across the world. She said 60 to 70% of the Germans will be infected with The Corona Virus in the coming months. And this statement was made on the floor of the parliament and more importantly in the presence of the German Health Minister, Jens Spahn. Spahn added that 80% of the infected will not even feel the symptoms. Well, a medical field I am not an expert in, so let me contain myself in this article about the economic effects of this dreadful virus. 

Well, on March 2nd, 2020, The Organization of Economic Cooperation And Development, OECD, published an eighteen-page report predicting doom and gloom for the global economy based on the ongoing concerns of the Coronavirus. Let me point out here that when the research was done for the report that was published on March 2nd was most likely done a few weeks prior to its publish- ing. That pushes us into February 2nd week. Now, at that time the effects of Coronavirus were beginning to be noticed. America barely had any carriers. Italy was not locked down. Iran had just begun to get the severity of it. German Chancellor, the largest economy in the EU, had not made such a terrifying yet fact-based statement. To put it mildly, we had no idea how fast the virus would spread. 60 countries so far since February have been affected. I am not going to talk about mortality rates or the recovery statistics because that is not my field. Please visit World Health Organization’s website for that. What I am going to talk about here is the global economic effects of this virus so we as a global community can prepare ourselves and take necessary actions when it comes to our production, trade, and services. 

OECD says that $2.7 trillion will be lost from the global economic output. Well, may I dare to say that this figure is very conservative? I cannot even begin to guess a number because the grim reality is that America will definitely face a recession, Japan, Eurozone, and China will lose the most. China has already begun to show the signs. The Chinese official manufacturing purchasing managers’ index shows a drop from 50 to 35.7. Now that, when translated into numbers for the common men to understand, it means that it is a disaster. For example, the Chinese automobile sales are down 80% and Chinese air traffic is down 86.6%. The Asian airline industry is poised to lose $129 billion. Now that does not include the hotel and tourism industry for countries such as France, Thailand, and Malaysia, to name just a few. 

The percentage point drop in the Chinese GDP alone is expected to be 0.7%. Canada 0.1. Germany 0.1. South Korea 0.3. Indonesia 0.3. And the list goes on and on. Not a single economy is showing sustenance power through this virus. Why does China matter so much? It does because Chinese imports were $2.1 trillion dollars last year alone. That figure includes American multinational sales and the rest of the world as well. China slows down, the world economy slows down. The icing on the cake is that the world economy is slowing down in addition and without a relation to the Chinese economy. 

Add to this the oil war that was started between Russia and Saudi Arabia for production and price 2 days ago will put a further burden on the already slowed-down demand. Saudi today has warned the world that it would flood the world oil markets with 12.7 million barrels a day in April as opposed to less than 10 million barrels just 30 days ago. Airlines, shipping companies, summer vacation travelers, no matter which way you look at it, the demand has slowed considerably. And when the demand is so slow and an additional few million barrels a day is dumped into the oil markets, that is a recipe for a drastic price drop. And a price drop cuts into the sovereign budgets of nations because many of these oil-producing countries have their fiscal break-even at much higher numbers than their extraction cost. 

So what should be done? 

Well when it comes to human tragedy through Corona Virus, all signs indicate that it will not be there. The recovery rate according to The Center For Disease Control CDC, in America, is very high. Especially for people under the age of 50 years, the recovery rate can be as high as 98%. It is not the mortality rate that I am concerned about, what I am concerned about is the economic slowdown because of human lockdowns. Humans face two deaths in this world a physical death and a financial death. 

When people will not be able to go to work, conduct business, interact or travel for economic activity, who is going to pay their bills? Companies will not continue with worker salaries without any attendance of those workers. Small countries need to adjust their spending patterns immediately. Countries like Pakistan that are exporters of goods to countries that are the most affected like Germany, the U.K., Japan, and others need to sit down and prepare for what is to come in the next few months. Many small countries do not even have the Coronavirus testing kits. Without the testing kits, we will not even be able to know the correct numbers of the infected ones, let alone quarantine them. 

We need to suspend the developmental budget for infrastructure in Pakistan, albeit temporarily, and reallocate those funds for what is to come. We Pakistanis have a very relaxed attitude when it comes to our health issues. We cannot deal with this virus. InshaAllah Sab Sahi Hojaaeyga! Inshaa Allah, it will, but Allah only helps those who help themselves first and then ask for his divine intervention. We neither need to be overconfident nor relaxed. We neither need to panic nor brush it aside altogether. We just need to see the reality, prepare for it, adjust our plans, be ready to fight it at all levels, and then say Insha Allah Sab Sahi Hojaaeyga. AMEEN. 

The percentage point drop in the Chinese GDP alone is expected to be 0.7%. Canada 0.1. Germany 0.1. South Korea 0.3. Indonesia 0.3. And the list goes on and on. Not a single economy is showing sustenance power through this virus.