Taking Stock of the CoViD-19 Pandemic

    Stockholm (NordSIP) – In its latest CoVID-19 Situation Report, published on February 25 2020, the World Health Organisation (WHO) identified 80,239 cases of Coronavirus 2019, of which 2459 took place outside of China. So far, the international organisation has counted 2,700 fatalities, of which 34 outside of China.

    Two cases have been identified in the Nordic region: one in Sweden and another in Finland. Both of them are understood to have been caught in China. In total, Europe has registered just above 800* cases of the disease, the vast majority of which (655) from Italy, where 17 people have passed away due to the virus. The only other European country where fatalities have been registered in France, where two patients have died so far. In the Nordics, Sweden is the most affected, with 7 confirmed cases, followed by Finland (2) and Norway and Denmark, each with one patient detected. The spread of the virus has now reached its exponential stage.

    * updated at 10:00am CET on February 28.

    Potential Economic Effects

    While it is still too early to forecast the ultimate effect of the Coronavirus on the global economy, economists have nevertheless tried to provide estimates based on the relative progression of the virus vis-à-vis previous outbreaks. Quoting research published in the Journal of Environment and Public Health, according to Douglas McWilliams, of the London-based Centre for Economic and Business Research (CEBR), “it is now estimated that SARS reduced world GDP in 2003 by between $30 and $100 billion. This is equivalent to 0.08% and 0.25% of world GDP.”

    Given that China now represents almost four times as large a share of GDP (16.9%) than it did in 2003 (4.3%), the effect of a similar SARS outbreak would presumably be much more significant than it was seventeen years ago. Adding this increased relevance of China to the relatively wider spread of CoVID-19 and of the measures being taken to prevent it, we can expect the damage on GDP to be similarly proportionate. According to estimates from Oxford Economics, the Coronavirus may cost as much as US$1 trillion worth of global GDP in 2020, equivalent to 1.3% of the planet’s GDP.

    The effects of a pandemic on the global economy can be categorised into one of two groups. On the one hand, there’s the loss of life associated with the virus, which would have direct effects on the size of the labour force and on the goods and services it can produce. For this situation to materialise, the virus would need to continue to spread unchecked in the same way that the Black Plague in the middle ages or the Spanish Flu of 1918 did. Fortunately, at this stage, the death toll still does not seem to warrant concerns of this kind. However, the WHO warns that it has not been able to estimate the new virus’ mortality rate accurately.

    Where the real cost to GDP lays is in the effect of containment and preventative measures. Stopping the spread of the virus has required quarantining of entire cities (eg.: Wuhan in China and Vo’ in Italy), which has delayed Apple production, forced thousands of Starbucks coffee shops and Toyota factories to close down and cancelled hundreds of thousands of flights.

    Financial Market Reactions

    Echoes of these macroeconomic concerns can be felt in financial markets. However, as with the spread of the virus itself, global financial markets appear to be playing catch up with China. Markets were not particularly prescient about the crisis. In part, this was down to Chinese authorities’ delayed response to the crisis.

    It was in the aftermath of the measures taken by authorities during the Spring Festival (extended) weeklong holiday at the end of January that markets reacted. Despite the outbreak starting in December 2019, the Shanghai Composite Index (SSE) followed an upwards path up until the eve of the national holiday on January 23. During the holiday Chinese authorities quarantined Wuhan, Huanggang, Chibi, Enshi, Ezhou, Huangshi, Suizhou, Qianjjiang, Xianning, Xiantao, Yichang, Zhijiang, Xiangyang, Jingmen, Xiaogan, and Dangyang, locking down approximately 50 million people. Although by January 23, the SSE had already fallen by 4.6% from its January 14 peak of CNY3,213, by the time the SSE reopened on February 4, it had fallen by another 8% to CNY2,734. It now stands at CNY3,013 on account of the containment and financial stimulus responses by the Chinese government.

    OECD markets have been slower to respond, only taking stock of the situation in the last week. Following its latest peak of US$ 3,390 on Tuesday, February 19, the S&P500 index fell by almost 8% in the following six days, due to Coronavirus concerns. In Stockholm, the OMX Stockholm 30 Index fell by a similar percentage during the same period. (-12% from peak as updated on 28/2 at 10:00am CET).

    Environmental Effects

    Less central to immediate global concerns, but nevertheless relevant for the discussion about the challenges facing climate change has been the environmental impact of the Coronavirus.

    According to Carbon Brief, a UK-based website covering the latest developments in climate science, climate policy and energy policy “the reductions in coal and crude oil use indicate a reduction in CO2 emissions of 25% or more, compared with the same two-week period following the Chinese new year holiday in 2019.”.

    This decrease amounts to approximately 100MtCO2, more than twice as much as Sweden’s total CO2 emissions from fossil fuels in 2016 or 12.5% of Germany’s annual emissions.

    Image by Zhizhou Deng via Wikicommons

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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