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Coronavirus Impact on Economy: Recession Alert
COVID-19 Coronavirus is already having an impact on the economy in China in a very big way. And not only in China. The economic contagion of this virus has spread to nearly all of Asia and elsewhere. Considering that most key global economies were already in a severe slowdown – largely due to the ongoing drag of the Trump trade war coupled with just being late-stage in their respective expansions – many greeted 2020 with weakened economic immune systems to begin with
The supply chain disruptions to consumer goods and service producing companies, which frankly include the largest of largest multinationals such as Apple, can not be overstated. The impacts of these disruptions will reverberate throughout the global economy for weeks at least, and depending on whether or not there is a quick end to the spread of COVID-19 and a quick end to the frantic quarantines and more (China is literally burning their money!), critical supply disruptions may persist for many months, perhaps the full year.
That would be enough in and of itself to at least trigger a quarter or two of contraction in many a nation’s economy. Capital Economics, which does exemplary work tracking economies around the globe, already has called for Australia + New Zealand, which is no small economy, to contract this quarter at a minimum, stating, “given the disruption that has already happened to tourism and to Chinese demand for Australian goods because of shutdowns of its industry and ports, we think the Australian economy will contract this quarter.”
But there are other things to think about. If there isn’t a V-shaped recovery, especially if more significant damage has been done to either or both the consumer and business psyche, then a vicious cycle may ensue, possibly around the globe, and create a full-on recessionary feedback loop. In this case, the coronavirus impact on economy would result in a classic severe global recession.
And then there is also this: Do any other nations besides China have to go into hardcore quarantine mode. And if so, which ones. If one of these is the U.S., or several large economic powerhouse states in Europe, yet more economic damage to the world economy will be done.
To those who may say, well, it’s a MAGA GREAT thing then that Trump kicked so many of these other nations around these past few years, because now we’ll just bring those jobs home and, voila! MAGA more jobs for US! It’s like, abracadabra!
Sadly, the reality may be more like abracadaver. Recreating all of those jobs and factories that have been for decades getting outsourced to other countries that offered multinationals lower costs right back at home isn’t like flipping on a light switch. We would be looking at years or more before a reversal could be done. And then what. Would Republicans really get on board with a chant of . “What do employees what? 150 cents an hour! When do they want it?” The answer would be never.
In summary, three distinct possibilities now seem to be on the table:
- Short one or two quarter V-Shaped downturn/upturn, most pronounced in China, with less severe V-shaped couplets in the most China-linked economies, such as Australia for example.
- As the impact roils supply chains, triggering more and more profit warnings, stocks slide, and maybe precipitously. Companies ease up on hiring, maybe stopping altogether. This happens in more and more places, with greater frequency. A vicious, full-on severe recessionary cycle ensues, and possibly lasts the entire year of 2020 – longer in some economies that can’t shake it off fast enough.
- This ends up being even worse than what the two baseline situations above suggest. Black Swans have this way about them (think 2008). Maybe China’s long-awaited mega bubble finally bursts. Maybe the US stock market bubble bursts harder than thought (it is arguably less-than-cheap right now), and causes a number of before-unseen defaults. Maybe COVID-19 is more severe, mutates, has secondary affects only seen months, even years later. We just don’t know yet. Real Black Swan type stuff.