Corona 19 status, what is the risk of economic downturn?

As Corona 19 infection spreads to all five continents except Antarctica, it is a global threat. Meanwhile, on February 27 (local time), the US stock market experienced a major crash since August 2011, and a major impact on the economy began to appear. What is the risk that Corona 19 will push the global economy into a recession?

Due to concerns over Corona 19, Google has shut down its offices in China, and large-scale exhibitions have been suspended. This effect is also being seen in Apple’s earnings forecasts. The stock market is also falling all over the world against the backdrop of the real economic turmoil, and many economists are keen to see if Corona 19 is driving the US and global economy into a downturn. Michael Wilden, professor of economics at North Carolina State University, recalled an epidemic.

In 1919, exactly 100 years before the discovery of Corona 19 in 2019, the flu, commonly known as the Spanish flu, which had been prevalent since 1918, raged around the world. The death toll at this time is estimated to be from 50 million to 100 million, and it is estimated that trillions of dollars will be lost if the same epidemic occurs in modern times.

On the other hand, on February 28 (local time), the number of infected people due to the damage of Corona 19 was 83,376 and 2,858 deaths, which is still minor compared to the Spanish flu. But Professor Wilden points out that although the mortality rate is relatively low, there is a concern that it could cause a major blow to the economy. The threat of COVID-19 is hitting the economy in four forms: production, trade, consumption, and stock prices.

First re-production. In China, where the damage of Corona 19 is the most, many factories are being shut down. This is because China’s production capacity is lowering, and the impact is surfaced in the form of a shortage of 150 kinds of medicines and parts of industrial products in the United States. Professor Wilden said US retailers are not yet seriously affected because they still have stock, but the fact that the US supply chain is dependent on China is a major concern.

Next is the trade. The US exports more than $100 billion annually to China. However, the most important export items are high-tech equipment and agricultural products such as soybeans. These exports were hit hard by the US-China trade war that began in 2018, but there seemed to be signs of improvement, with the two governments signing a phase 1 agreement in January 2020. However, it is feared that the trade between the two countries, which has been revived by Corona 19, will be broken. Professor Wilden said there is a concern that trade recovery will be difficult due to the Corona 19 epidemic and the slowing Chinese economy, so many companies are concerned about business in China.

Next is consumption. Consumption is the driving force in the U.S. economy, which drives the global economy, with 70% of U.S. economic growth supported by personal spending. Professor Wilden points out that the slowdown in consumption is the most dangerous for individual consumers to stagnate due to the corona19 effect, which is directly linked to the economic downturn.

On the other hand, there are also relatively optimistic views on consumption. In 2003, severe acute respiratory syndrome caused by the SARS virus killed 700 people worldwide. As a result, consumption of durable goods such as home appliances, automobiles, and furniture decreased, but it was only temporary and did not lead to a recession.

Corona 19 damage is more than SARS, but according to data released on February 25 (local time), the consumer confidence index in February 2020 is slightly rising, and US consumption is still showing strong signs. In addition, dollar interest rates and oil prices have also declined since February, and they can be seen as supporting consumption.

Regarding this economic trend, Professor Wilden said that so far, consumers seem to be paying more attention to jobs, income and gasoline prices than Corona 19. He pointed out that consumption has not shrunk that much.

The last is stock. The biggest worry for the stock market players is uncertainty. There is no clue about the end of Corona 19, and it is not expected how long the epidemic will continue or how far it will expand. Accordingly, the S&P500, a representative US stock price index, has fallen by more than 10% since February 21, and says that the world’s longest bull market, which has continued for 12 years, is finally over.

Professor Widen said that the best thing we can do now is to keep an eye on the situation and prevent the spread of the virus anymore. He said he fears facing a difficult path, but if he is lucky, it will end in weeks or months. As long as US consumers continue to spend, he said there is little risk of a recession because the economy continues to expand. Related information can be found here .