Monday, February 3, 2020

Coronavirus and the economy

We're beginning to see the impact of China's coronavirus outbreak on markets in that country and around the world.  Already we've seen:
  • Shipping rates have plummeted as demand for cargo space decreases;
  • Air freight availability - critical for factories in Europe and America to maintain their "just-in-time" stocking levels of critical parts - is decreasing dramatically as airlines reduce flights to and from China;
  • Many Chinese factories and consumer outlets are closing their doors under the impact of quarantines, public fears, and the unavailability of supplies (even auto manufacturers);
  • Those who rely on jobs at such establishments to earn a living are suddenly finding themselves effectively out of work, even though they're technically still employed.  Whether or not their jobs will come back is not known at present - but what are they supposed to do to buy food and other necessities in the meantime?  There are no other jobs available, and even if they have money, many of the shops where they buy supplies have closed their doors as a health measure.

This has serious implications for the US and European economies.  Many of our products, even though made locally, contain imported components.  Without the latter, they can't be produced, which means many of our factories are also likely to be idled.  It takes time (and, often, a lot of money) to set up alternative sources for those components, and until that's done, the plants relying on them will remain shuttered.  That impacts workers in those factories, the air freight and rail and truck companies that take goods to and from them, the shops and vendors that sell what they produce . . . the whole schmear.

The coronavirus epidemic is still in its early days.  I hope and pray we can get a handle on it quickly, and reduce its threat to manageable levels.  If we can't, the odds of it becoming a "black swan event" that damages the global economy are getting shorter by the day.

Meanwhile, I urge my readers to follow the common-sense suggestions (2 links) made by Aesop and others who know what they're talking about.  This epidemic is inconvenient, and may be dangerous to those whose health is already impaired, but for most of us it isn't something life-threatening unless we're stupid.  In particular, try to have enough basic supplies to quarantine yourself at home for a few weeks if necessary.  It may be boring and unproductive, but it remains a perfectly viable self-defense mechanism against disease.  If you aren't where you can catch it, you won't get it.  Q.E.D.



LL said...

I received e-mail from a client in China (large client) who wrote that they're shutting down until the plague has ended. They're located in the center of Shanghai. So it impacted my bottom line.


I was in China (Shenzhen and Guangdong) about two years ago. Companies have dorm rooms with 6-8 persons in an apartment. Can we say "shit through a goose" contagion?

Sam L. said...

This is why I enjoy living in "the back of beyond".

Beans said...

And yesterday some news came out that the afflicted number is over 70K, not 3k like the authorities are saying.


In the long run, this will actually be good for us, as it will force manufacturing back into the US. Even for little stupid things.

Short term? The world will take it in the shorts.

And somehow the left will blame it on Trump.

tsquared said...

Throw in the swine virus that has decimated a large portion of the available meat in China this past year. Add also the recent chicken virus. Now a highly contagious virus for humans. The population of a nutritionally weakened population is about to have a "market adjustment" on the population. What will emerge will be a physically stronger China as only the strong will survive.

There is opportunity there. In the void after the virus has run its course it will be time for American companies to establish greater presence and push capitalistic values.

Unknown said...

Don't forget that currency is falling relative to the U.S. dollar. This would present an opportunity for, say buying a big ticket item in NZ or Aust or SE Asia.