The effects of the coronavirus as it continues to spread might very well crash the global economy. The virus is already biting hard into financial markets and several businesses worldwide. However, things could very easily get a lot worse. According to former Morgan Stanley Asia chairman Stephen Roach, the coronavirus epidemic could very well lead to a global recession.
Coronavirus Might Cause Recession
Speaking to CNBC’s Trading Nation on Monday, Roach expressed fears that the outbreak could lead to a total breakdown, especially in weaker economies.
“Big shocks for weak economies that don’t have cushions to withstand them could lead to unexpected recessions.”
Roach is comparing the current outbreak to the SARS epidemic which hit China in 2003. The former exec was in China at the time and witnessed firsthand the problem and all of its effects. He further says that even though the Chinese government’s current efforts are more dogged than it was in 2003, the next few months might still be quite difficult.
Recession from Coronavirus Is Not Far-Fetched
The idea that the coronavirus could cause an unavoidable recession is not that far off. The spread of the virus is currently very alarming, triggering different governments and authorities to take several measures.
The Chinese government has initiated a lockdown in Hubei province and extended the Lunar New Year. Many organizations have shut down temporarily while others require their staff to work remotely. Many parts of China’s economy are slowly grinding to a halt and more might happen in the coming days. Reports from Macao, a special administrative region of China, state that the number of Lunar New Year visitors plunged by more than 73.6%
Outside of China, governments and big businesses are already apprehensive enough to make certain changes. For example, British Airways says it has “suspended all flights to and from mainland China with immediate effect.” While it stated an exception for “essential travel”, the airline said safety is paramount.
All of these measures, while necessary, are bound to affect global financial markets, with heavy consequences as time goes on. The consequences might eventually culminate in a recession.
Coronavirus Effects Could Be Worse
Roach, on some level, is still hopeful that the spread will be curbed. Despite describing it as a ‘frightening outbreak”, he believes that the effects could be managed if the virus is quickly prevented from spreading. However, he is not completely hopeful that something can be done quickly enough, with reduced effects.
‘Hopefully, as was the case during the SARs-related disruption of 2003, this will be a temporary disruption to the China and world economy, followed by a post-virus rebound in the second half of 2020…But with China and the world on a far weaker growth trajectory, this could be wishful thinking.”
Can the Virus Be Contained?
The chances of containing the spread are however being reduced every day. Already, the number of confirmed cases has surpassed those of the SARS epidemic in 2003. Recent reports state that confirmed cases of the coronavirus as hit 5,974. The SARS epidemic had a total of 5,327 cases.
Piling on the bad news, Novartis CEO Vas Narasimhan has said that “it will take over a year” to find a new vaccine for the coronavirus.
On the positive side, even though China’s National Health Commission says the death toll has hit 132, it also says than 103 have been cured.
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.