What does it mean for business?
The next few weeks will give us more to go on. In the meantime, bioscience and virology labs around the world are currently working in unison to analyse the genetics of the new virus, with a good deal of data sharing going on, and with the WHO acting as co-ordinator. A Californian company is already claiming to have synthesized the virus in a lab, which is encouraging news for all of us who want to see an antivaccine soon.
But enough of such mathematical whataboutery. By the middle of February, many of the developed world’s stock markets were into negative territory, year to date, and not just because the 2019 Santa Claus rally had finally run its course. (In Britain’s case, the shadow of Brexit was certainly an additional factor, but let’s not over-complicate our view of the situation.) No, on the whole, the market’s attention was focused on the China question.
Not so much, what would the coronavirus do to a domestic import market that had already been slowing appreciably for several years – but what would it do to inward investment? What about China’s hugely important needs for raw materials, notably oil? What if the quarantine lockdowns continued to make it difficult to make things in the People’s Republic? Indeed, what if the whole idea of making foreign goods in China became too much of a logistical problem?
There was also the small matter of China’s industrial shutdown. Which is putting it rather too strongly, because at the time of writing it was only the Wuhan area that was officially closing its factory doors. But foreign agencies have reported that large manufacturing operations elsewhere in the country are also non-operational, and that Apple, Volkswagen, Qualcomm are all affected by shortening stockpiles. CNBC reported in mid-February that the country’s oil importers were buying up to three million barrels per day less than usual, and that the global outlook for 2020 oil sales was now static, or falling.
Even the mighty Alibaba, the e-commerce operator which supplies vast quantities of Chinese-made products to the Western world, declared on 13th February that the “Black Swan” coronavirus (yes, it used that word) had disrupted its operations and had resulted in dislocations of food and medical supplies, and much else besides. The white face masks we’d been seeing on the news were becoming scarce. And commuter transport facilities in several cities were reported to be half-deserted – even in bustling Shanghai, which is a very long way from Wuhan.
What might all that imply? Probably, that workers are being stood down or even left unpaid. Possibly that routine tasks like shopping or paying the rent were becoming difficult. Very probably, that the banking system may come under heavy strain, as if it didn’t already have a mountain of bad debts to deal with.
And – perish the thought! – that popular resentment against the authorities might become a political factor once again. Things have quietened down since the early noughties, when a sudden influx of country-dwellers to the overcrowded cities had put the social compact under severe strain, forcing the government to splurge trillions on city housing and consumer benefits which it couldn’t quite afford.
The wider international context
As we’ve said, many of the world’s major financial markets spent January in something of a state of shock. Which wasn’t too surprising, considering the number of unknown factors in play. And although February saw a brief attempt at a relief rally, the emergence of further difficult data in mid-month sent prices scuttling downward. Everywhere, that is, except for the United States, where Donald Trump’s improved prospect of re-election seemed to give the markets there new heart.
That prospect, of course, remains a two-edged sword if it encourages the White House to adopt a tougher line against Beijing in its on-off trade relationship. It will take more subtlety than this president possesses to walk a sensitive line through a difficult period. But we do know that the National Retail Federation forecast that
US retail imports would fall by 12.9% year-on-year in February, thanks to supply difficulties with China, and by another 9.5% YOY in March. The fact that Beijing had meanwhile offered Washington a tariff cut on $75 billion of US goods might not be enough to make those imports actually happen…..
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