The projections as to the impact of this virus on China’s economy are looking progressively less rosy. There will of course be an announced GDP number, and then there will be reality beyond that. But it is going to be hard for the markets to credit a number above … 3%? Not sure what is going to feel credible at the end of this month. It will depend on how fast and to what extent the Chinese economy really gets back into gear over these next few weeks. School classes are out until … April? May? All public gatherings are off indefinitely. Restaurants and most shopping areas are going to be sparsely populated for a long while. The China numbers of infections and deaths are continuing to be low, and there is a desperate need for Those in Command to declare victory and get things moving again. They know it. How close the system is to some kind of seizure is impossible to say. Months away, presumably, but not forever.
There is much talk as a result of stimulus measures, and the Shanghai stock market is definitely up on the assumption that a money flood will come. But given the way the last stimulus effort played out – the debt mountain created by China’s response to the Global Financial Crisis – is has to be a step Those in Command will only take if there is really no other choice. How much money they have to play with is yet another complete unknown.
Meanwhile, we watch the numbers in South Korea and Japan most closely. How Europe and the US will handle a serious outbreak, is a concern beyond our capacity to evaluate, but the way the media is stalking panic raises the question of why – our guess is the knee-jerk tendency to stress the sensationalist angle, but there will be conspiracy theorists who see more than that. The biggest risk economically is the impact on the Tokyo Olympics. A cancellation of that event would be very damaging for the Japanese economy, with all sorts of negative flow-ons for China as well.
Not fun times, boys and girls.