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How coronavirus could spawn another recession

By XN Iraki | February 18th 2020
A textile worker is seen on a fabric production line at a factory in Qingdao, Shandong province, China on February 14. Complete lockdown of the country could see many other countries run low on imports. [Courtesy]

Fear, more than scientific and medical reality, seems to preoccupy the coronavirus debate.

Last week, a Chinese student came to my class wearing a mask. Add conspiracy theories and a medical case gains political, economic and even religious importance. 

To most people, the virus now known as 2019-nCoV is scary; you do not know who will be the next victim. Yet, the resulting ailment is “curable” just like flu. The impression created is that once you get the virus, you should write your will.

Let us leave the medical and religious part of coronavirus to the experts; they can tell us for free if it is a natural virus or genetically modified.

Religious leaders can explain to us the appropriate verses that predict or explain the virus. Politicians, on the other hand, can explain why they want to close borders.

The economic impact is our focus. China, where the virus originated, is the world’s second-biggest economy and one of the engines of growth. The economic rise of China is unprecedented and still a hot subject among economists, policy analysts and even idlers.

The coronavirus has led to closing down of Chinese cities and their industries.

Ever wondered what would happen if Nairobi was put on lock-down? Think of all the suppliers who visit the city every day and buyers from all parts of the country. Think of the lost business. If we complain of losses because of a day’s holiday, what of a lock-down?

The interconnectedness of the world economies means that whatever happens in China has consequences globally.  

Many supply chains end or start in China. Remember where your iPhone is designed and assembled? Think of electronics whose raw materials come from China like rare earth metals.

If China closes, the supply of most raw materials and their markets would be interrupted.

You cannot get new supplies or markets overnight. Remember China is the workshop of the world, while India is the pharmacy.

The one billion-plus citizens of China are a big market, and closing it would have far-reaching repercussions in other countries. If you visit China, the first thing that strikes you is the proliferation of global brands. It is like Africa slept while the rest of the world invested in China.

Think of exports and imports. China imports lots of oil and other commodities. If her economy slows down, imports reduce and exporting countries will suffer. It is more like when your neighbours stop buying your milk. You got no money to buy other items.

It is more than that. Countries that fail to export to China will have no money to import from elsewhere, and the global economy will slow down.

Think of the political and social consequences of joblessness resulting from an economic slowdown. Some estimates from Bloomberg suggest Chinese GDP growth will slow down to 4.5 per cent because of this virus.

It’s not just goods but services too. Millions of tourists bring lots of foreign exchange. Airlines are mostly affected, and I sympathy with investors who own stocks in airlines.

Industries, like countries, are interconnected; airlines get inputs from other industries and so on. Was it a good decision for KQ to stop flying to China? Remember when it stopped flying to West Africa because of Ebola?

The coronavirus could not have come at a worse time, coming at a time when China is coming to terms with a costly trade war with the US.

China’s growth rate has also slowed to the lowest rate in about three decades. The combinations of such events are the perfect ingredients of conspiracy theorists.

When we last had a similar virus, SARS in 2002-2003, the world economies felt it. We shall feel this one too. Economic growth is further slowed by postponed decisions.  

One wonders how many firms ever factored in coronavirus in their financial projections.

We could count the virus as an economic shock just like an earthquake or war. Maybe in future, economic courses should include Biology 101. Coronavirus could even demand a change in our curriculum so that we are more interdisciplinary.  The biggest problem with this virus is that there is often no precedent to learn from.

Every such outbreak is unique in terms of virus DNA, transmission and cure. And often no one knows where the next outbreak will come from.

The good news is that with our ingenuity, we are likely to come up with a vaccine for coronavirus.

We have done that before with other viruses and pandemics. Interestingly, the virus is “avoiding“ Africa where medical systems are weak. That should not stop our preparedness.

Relax, though, we shall overcome coronavirus and other global challenges.

The Chinese economy may slow down because of the virus.

But the historical anchors of the Chinese civilisation are strong enough to wither coronavirus. I doubt if this virus will stop the country from consolidating its position as a global economic powerhouse.

The writer is an associate professor at the University of Nairobi.

Covid 19 Time Series


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