The numbers of infections and deaths in China are heading down, even as the numbers in other places are heading up, but the key issue now is when the Chinese economy will get back to something close to normal, and clearly it is going to be a slow process. Manufacturing in many parts of the country is theoretically allowed to resume but a lack of workers and problems with supplies is making it difficult for many enterprises to resume operations. Most service industries across the country are stuck. there is no business. Virtually no one is out on the streets or going to restaurants, and are visiting shops as little as possible to buy essentials. Public transport and airports are almost deserted. Office workers, on the other hand, have to a large extent resumed work, mostly from home, but it is impossible to quantify the extent of their contribution to economic activity. As a result, Q1 is going see a huge hit on GDP growth in a year when they wanted to announce certain targets being met – the doubling of GDP in the ten years from 2010, among them. It is of course possible that there will be a strong rebound once the all-clear is sounded, which will push the economy up to some number like 9% quarterly growth, which could balance things out to their satisfaction. Or not. It’s going to be very tough, and it is surely going to be April before a lot of things resume. Schools, for instance.
Now that reasonably significant numbers of virus cases are being reported in South Korea and Italy and to some extent elsewhere, we are going to have a very clear view on how different systems manage such a crisis. As the risk of a significant impact became clear to US markets over the past couple of days, New York stocks have plummeted. How wide the virus spreads in other countries and with what impact, we just don’t know now, but it being a problem not exclusively for China is definitely potentially of benefit to Those in Command in terms of how to spin things.
Another thought we are pondering is that this virus event marks the end of the era of globalization which began with China’s entry into WTO. It is likely to speed up whatever forces for decoupling are out there, which brings us back to the old question posed here many times – ultimately, who needs who more. Supply chains are going to shift as soon as other locations can take up the production. There is a huge opportunity here for other countries.
Be safe and clean over the weekend, stay away from crowds and put your face mask over the nose as well as the mouth. There are some silly photos coming out of Italy of people wearing masks only covering their mouths.