The economic effect of Covid-19

If one doubts the terrible economic consequences of the disease, then these Nasa photos will jolt you out of your complacency.  They show the amount of Nitrogen Oxide in the atmosphere which is primary due to the usage of motor cars but also any industrial process that burns fuels at high temperatures.


The first photo overs a period in January before lockdown – voluntary as well as involuntary – and the second covers the period after it has taken effect.

The world has relied on the dramatic economic growth of China as a primary driver of worldwide growth over the last 30 years.  We have become inured to China’s growth consisently exceeding 10% that there has already been a small frisson at the prospect of China running at 6% before Covid-19.  This new enforced industrial slowdown will dramatically hurt China’s economy causing that number to look optimistic which will ripple through the world’s economies.  Furthermore, if the epidemic globalises much more than it already has, it will force similar economic lockdowns around the world with disastrous economic consequences, even more severe than that caused by the sub prime crisis.  
The sub-prime crisis only locked up the flows of money due to lack of trust in credit and the institutions supplying it and those needing it.  That could be corrected by printing money and making it available at ridiculously low rates (quantative easing).  This time, people have lost trust in each other and don’t wish to interact causing severe limitations in all economic activities over and above the industries that are directly affected by it such as tourism.


Pollution in China after the appearance of
coronavirus’


This crisis is the very definition of a Black Swan event.  But what is worse is that it could be just one jigsaw puzzle piece of the perfect storm.  The US stock markets were hit by roughly a 50% drop due to the sub-prime crisis, hitting their lows in January of 2009.  Since then they have hardly looked back.  Though the PIGS crisis, Brexit and the various Trump inspired spats and trade wars the markets have briefly hestitated but generally powered ahead for 11 years – one of the longest bull runs ever.  Worldwide, stocks hit their peak around the 19th of February and have lost 12.5% since then.  Dramatic, but in the larger scheme of things, it is just a speed bump so far.  If the effects are in any way similar to the sub-prime crisis we could expect another 37.5% drop!


In SA the perfect storm will be exacerbated by our near bankrupcy.  A lot depends on the next Moody rating and whether Cosatu is prepared to take Tito’s ultimatum’s to heart.   Any strike epidemic will cause an economic lockup that could make the Covid-19 no more than a bad dream.

If anyone thinks that the photos have been fudged by selecting the January ones taken during the daytime and the February ones during the nightime, just look at Seoul – it’s pretty consistent because they haven’t locked down yet.


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