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A Global Recession is Coming if China Fails to Kill Coronavirus Spread

Last Updated September 23, 2020 1:32 PM
Simon Chandler
Last Updated September 23, 2020 1:32 PM
  • The Wuhan coronavirus has infected over 2,000 people and killed 56.
  • China’s lockdown may worsen an already fragile global economy.
  • The risk depends on China’s ability to contain coronavirus’ spread.

When China sneezes, the world catches a cold . And if the deadly Wuhan coronavirus spreads much further, this could be a very big cold indeed. The virus has so far killed 56 people and infected over 2,000 people . And according to China’s most highly respected virologist, the window of opportunity for containing the virus’ spread has closed.

An airport staff member uses a temperature gun to check people leaving Wuhan Tianhe International Airport in Wuhan, China. | Source: AP/ Dake Kang

A global recession is coming. Analysts and economists had already spend much of 2019 predicting a downturn for this year. But with the added risk factor of a global pandemic, things could take a steep nosedive very quickly. The SARS outbreak of 2002 and 2003 caused “the worst economic crisis in Southeast Asia ” since the 1997 Asian financial crisis . If the Chinese government can’t get a handle on the coronavirus’ quickly, the virus’ spread could prove to be the straw that breaks the global economy’s back.

Coronavirus + Preexisting Risk = Recession

It’s not as if the global economy was doing particularly well before the Wuhan coronavirus’ outbreak. In August, a survey of economists by the National Association for Business Economics concluded that 72% of analysts expect a US recession to hit by the end of 2021 . This percentage included 38% of economists who believe a recession will strike by the end of this year and 34% who think it will come next year.

Taking a global view, a UN report published in September similarly warned of a worldwide recession this year . In its case, the report’s authors pointed to such risk factors as trade wars, currency fluctuations, long-term interest movements, and also the possibility of a no-deal Brexit.

Other reports also highlighted the US-China trade war as a potential trigger of a global recession . Some also suggested that China’s economic growth would stall this year if the government failed to step up domestic investment .

dow jones, u.s. coronavirus outbreak
Reports of a U.S. coronavirus case sent the Dow well off its session highs. | Source: AP Photo / Mark Schiefelbein

Well, the Chinese government may indeed fail to increase investment this year. It has imposed a lockdown on the movement that currently affects 56 million people . Meanwhile, it admitted that the virus is now accelerating its expansion . As a result, it has also imposed wildlife trade bans and long-distance bus travel restrictions. Hardly the signs of an economy about to enter a period of accelerated growth.

Bigger Than SARS

Between November 2002 and June 2003, an outbreak of SARS infected around 8,400 people and killed just over 800 . Already, the Wuhan coronavirus has infected over 2,000 and killed around 56. It commenced its attempt at world conquest only at the beginning of January .

The coronavirus looks set to have at least as severe an impact on global health as SARS. But given Chinese government admissions that it’s spreading faster, it could very well be bigger.

China should, therefore, be scared. And so far, the outbreak has certainly spooked Chinese markets. The China large-cap ETF (NYSE:FXI) has been sinking downwards for over a week. At the same time, official figures have revealed a 41.6% decline in air travel, a 45.5% drop in rail travel, and a 25% drop in automobile travel.

China large-cap ETF
Source: YCharts

Non-Chinese markets are also spooked. The Dow closed weakly on Friday. Its prognosis has been made worse by the combination of numerous other geopolitical risk factors, including an attack on the US embassy in Baghdad.

Some economic analysts are now taking all these factors as a sign that a global recession is very much on the cards.

Coronavirus tweet
Source: Twitter 


Fortunately, other traders remain more optimistic. And if the Chinese government’s efforts to contain the coronavirus’ spread are effective, history may ultimately prove these optimists right.

Coronavirus Dave Reiter tweet
Source: Twitter