The Coronavirus is rapidly turning into a pandemic. The really worrying thing about this virus is how incredibly easily it passes from human to human. It seems you only have to look at someone with the virus, and you’ve got it. Countries are trying desperately to bring the bug down, but success is very limited so far. China is practically cut off from the rest of the world, but it is causing lockdowns in South Korea, Italy and Iran. We haven’t seen the end of it yet. In fact, we may not have seen the worst of it yet either.
We have been through it all before, of course, with SARS and swine flu, but this seems to be much more contagious. The cruise ship held up in Japan seemed like a good way of killing off the virus… until it was obvious that it had actually become an incubator, and more people than ever were infected. It is clear that no one knows how to deal with this, and that is the worst thing of all.
But the real concern is the economic consequences of such an event. The effects are really starting to bite. Exports are affected, supplies are running out in affected areas and markets are plummeting. Treasury predicts that we will see a short term slump in growth in the first half of the year, followed by improved growth in the second half, but they cannot possibly be sure of that. While no-fly dates are extended, and people planning trips to Asia in the next few months are warned that they may not be allowed to travel, there is no way this will all be fixed by the end of June.
The global economy may be heading for some sort of “sudden stop” in supply chains, trade flows and tourism, more akin to the outbreak of the First World War than the Lehman or dotcom crises.
Tourism certainly is being badly affected. Supply chains not so much yet, except in areas which are under lockdown, but what happens next is anyone’s guess.
What happens or does not happen in Wuhan has been overtaken by events in Iran, Italy, the Pacific rim and no doubt Africa as well if there were surveillance data.
This is surely more like the Spanish flu of 1918 than anything we are used to. The Chinese data suggest that roughly 14 per cent of those infected over the age of 80 are dying.
Stuff.
The Spanish flu is estimated to have killed around 50 million people, but poor nutrition, overcrowding in military camps and hospitals and poor general health clearly contributed to that. Nevertheless, this virus, related more closely to SARS than the H1N1 viruses, certainly has the potential to kill a lot of people in places like Africa and Afghanistan, which has now reported its first case, but hopefully Western countries, which have better health practices, will not see large numbers of deaths. As our winter approaches, there is little point in pretending that we are going to be immune. It is only a matter of time before our first cases are confirmed.
My biggest concern is that the government appears to be considering allowing overseas students, particularly Chinese students, an exemption from the travel ban. They should not do this under any circumstances. Promises of self-isolation ring hollow; no one can completely isolate themselves for two weeks. They have to get supplies, and if they are living in shared accommodation such as hostels, or even boarding in family homes (as many do) it is completely impossible. They will be sharing bathroom facilities and probably dining facilities as well. What about the people they come into contact with while coming into the country? Airline staff, customs and immigration personnel, bus drivers and all the others on the bus or train? It is madness to even think this won’t be a disaster if this is allowed.
Trade will not be normalised in a few months either. Business that has been lost to date will mostly never be recovered, meaning that many companies will have significantly reduced profits for the current year. Chinese industry activity is reportedly down by something like 30%, (an estimate not based on official figures, of course) and is likely heading for an overall reduction of over 10% for the full year. We already know how dependent New Zealand is on the Chinese market. I have also noticed that many NZ companies that are reporting in the current earnings season are paying flat dividends, obviously preserving cash if things get tight in the next few months. Chances are, they will.
All of this is also likely to affect the election, less than 7 months away now. If things really start to bite, it probably will not bode well for this government. The virus itself may well have burned out by then, but the economic effects will flow on for some time. What happens if we start to see redundancies happening in a lot of companies affected? The logging industry is already badly affected, along with travel, tourism and hospitality. Most travel arrangements are booked months in advance. None of this will be fixed in 7 months.
I am not blaming this government for the virus outbreak, but I do think they were caught sitting on their hands when it came to reacting to it. But if they allow the Chinese students into the country because it will adversely affect their studies, then they deserve everything they get.
In the meantime, don’t panic. I was reminded today of how people struggled with things like cash and petrol during the Christchurch earthquake, and it made me consider taking maybe just a few small precautions, such as having some cash on hand and refreshing my emergency water supply. Above all, don’t panic because the markets are spiralling downwards. Don’t even look at your shares or your Kiwisaver, unless it is to invest more while prices are so good. We have had a wonderful run of excellent gains in the last year or so, and this crisis will pass. Whatever you do, don’t lock in losses by selling now. The markets will probably recover faster than the economy will; the markets run on sentiment, while the economy runs on tangibles.
We always said that the true test of this hapless government will be how they handle a crisis. If things go the way they are predicted, we may be about to find that out.
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