Coronavirus might tip the global economy into a recession

WHAT ARE THE ECONOMIC EFFECTS OF THE CORONAVIRUS?

Last week, a cruise ship docked at a port in Jamaica but was unable to disembark its passengers due to a perceived threat that they might transmit the coronavirus to the local Jamaicans. The passengers had all intentions to disembark and claim no one on-board had the virus, but the Ministry of Health thought it was too risky. The ship had to leave.

Owners of shops on the docks, local manufacturers of craft items, trinkets, garments, food, and beverages missed out on a crucial day of sales and other business activity, assuming that ship day is one of the busiest days on the pier.

This is just one day, one country, and one type of activity. Imagine the rest of the world and the other days that are affected, which must go without crucial business activities similar to this? The world seems to be headed towards a slowdown in business activity and productive output as a result.

WILL THE VIRUS CAUSE A RECESSION?

The coronavirus is having its most severe effects in China, and by extension, countries that trade and do business with them. China is a leading player in the global trade through the production of goods and services. China is also a leader in a global logistics chain of events that allow global business and commerce to occur on time. Many businesses manufacture their goods in China, and countries rely on goods manufactured in China to satisfy many of their demands. From modern medicine to household consumption goods, to cell phones and office equipment, steel, and construction equipment, almost every and anything is made in China.

Since this coronavirus epidemic, countries have become sceptical of purchasing imported goods from China. The virus has led to a decline in Chinese output in some areas but an increase in others. Within months, China was able to construct a hospital to handle cases solely related to the virus. However, the potential global slipover effects of the virus have led economists to believe that there might be a global recession looming in light of this.

WHAT IS A RECESSION?

A recession is a general decline in output from one year to the next. Recessions like this might impact production and, therefore, the supply of goods and services, then impact income and demand negatively. Some recessions are driven by supply, while others are driven by demand. There have been several recessions over the last 40 years – the global oil price shock led to global recession in the 1970s; the Asian financial crisis and the Jamaican financial crisis in the 1990s; and the global financial crisis of 2008, among others.

Now the recession is slowing the production and distribution of goods, services, and labour. The fall in production means a shortfall in supply, which might push up prices, causing inflationary effects. Higher inflation also erodes the purchasing power of many citizens and as a result, reduces their standard of living.

HOW WILL THE CRISIS UNFOLD?

The world seemed to be headed into a recession before the alarm sparked by the coronavirus. The looming recession was triggered by many other global geopolitical occurrences, including the trade war between China and the US, who imposed US$50 billion worth of sanctions and import restrictions on each other.

A fall in production in Singapore, Japan, and other Asian countries; a fall in the demand for German automobiles and industrial output in some countries; political occurrences in Italy; Brexit in the United Kingdom; plus other occurrences across the European Union, North, South, and Central America, and Africa, all have a role to play in the emergence of the crisis.

This coronavirus is like the last straw on the camel’s back. As a result, many countries are reforecasting their growth numbers downwards. The International Monetary Fund (IMF) has already forecasted global growth numbers downwards.

All this is indicating the possibility of negative economic outturn by the end of the year, if this continues.

HOW CAN COUNTRIES SURVIVE THE RECESSION?

With every crisis comes the opportunity for fresh ideas to emerge. The coronavirus epidemic is indicating that the world is changing and wholesale production and importation of goods and services are becoming dangerous and unhealthy. People are now demanding more personalised goods and services, even if they are more expensive; it’s healthier and less dangerous.

More effort must be put in place to domestically produce niche goods and services to satisfy some of the shortfall that might arise from a fall in production in China. More effort has to be placed on investing in value-added futuristic goods that rely on alternative energy sources.

Jamaica, in particular, needs a technology and innovation fund to boost innovation and technology so that we may be able to produce more in the near future.

Senator Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of The University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email editorial@gleanerjm.com.