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Governments Will Use The Coronavirus Card To Downgrade Estimates And Increase Interventionism

The John Hopkins University Coronavirus Global Cases Monitor shows that the mortality rate of the epidemic is very low. At the close of this article, 83,774 cases, 2,867 deaths and 36,654 recovered. It is normal for the media to focus on the first two figures, but I think it is important to remember the last one. The recovered figure is more than ten times the deceased one. This should not make the reader ignore the epidemic, but it is also worth reading the scientific study that shows that the death rate in citizens under 60 is less than 1.3%, 0.2% in young population, and on average it is a maximum of 4% (“The Epidemiological Characteristics of an Outbreak of 2019 Novel Coronavirus Diseases”, February 2020).

I have attended several debates in international media where scientists repeat these important factors to prevent panic reactions from the population. History shows us that these epidemics have diminishing mortality rates and are contained relatively quickly.

We must remember the victims and their families and pray for a quick response from the scientific community, a solution that will surely arrive… Although not in the time that market participants and media would desire.

The economic impact is completely different. There is more logic in the negative reaction of markets because the coronavirus impact adds to an already weak and bloated global economy that was showing poor growth, high debt and an evidently disappointing earnings season before any epidemic was included in estimates.

The ramifications are not small. China has closed 21 provinces that account for about 90% of exports and 80% of GDP. At the close of this article, 13 provinces, which account for around 51% of China’s GDP, have begun to recover economic activity, but at a very slow pace. China PMIs came at the lowest level in decades, even below 2008 figures. Manufacturing PMI fell to 35.7 in February, compared to the previous 50 and estimates of 46. More importantly, non-manufacturing PMI collapsed to an all-time low of 29.6 compared to the previous 54.1.

Few analysts expected to see China posting recession figures, even in their most negative estimates. China may print a zero GDP in the first quarter, which shows the extent of the economic shutdown.

The previously mentioned PMIs are important for two reasons: Manufacturing, which was already poor and in contraction in most leading economies, is likely to slump in the first quarter. However, the second conclusion is even more worrying. The non-manufacturing and services sectors have kept the global economy afloat in an earnings and manufacturing contraction and, this time, services will be hit harder and for longer.

Why? Because the only action that authorities can take to prevent a collapse in the health systems of their countries is to shut down borders, limit travel, cancel large gatherings and events as well as reduce international trading activity to reduce the virus spreading speed. Not because the mortality rate is high, but to avoid a massive flow of citizens into hospitals and hoarding of medicines…..[    ]

What do you think?

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Posted by Kingston Porter

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