The weekend just gone was one where an epidemic began to have more economic consequences. In a world where there appears to be a Trump Tweet for pretty much everything this one from Friday is not going so well.
China has been working very hard to contain the Coronavirus. The United States greatly appreciates their efforts and transparency. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!
The media has revved itself up about the Corona virus and is in some cases treating it like a television series I remember from my childhood called Survivors.
It concerns the plight of a group of people who have survived an apocalyptic plague pandemic, which was accidentally released by a Chinese scientist and quickly spread across the world via air travel. Referred to as “The Death”, the plague kills approximately 4,999 out of every 5,000 human beings on the planet within a matter of weeks of being released. ( Wiki)
Fortunately we are a long way away from that situation although it must be awful for those affected. Let us switch our emphasis to the economic affects as we live up to the description of economics as the dismal science.
More and more cities are in lock down and this morning there has been this announcement.
SHANGHAI (Reuters) – The Shanghai government has said companies in the city are not allowed to resume operations before Feb. 9, an official at the municipality announced at a press conference on Monday.
The measure is applicable to government and private companies but is not applicable to utilities and some other firms such as medical equipment companies and pharmaceutical companies, the official said.
China’s cabinet has announced it will extend the Lunar New Year holidays to Feb. 2, to strengthen the prevention and control of the new coronavirus, state broadcaster CCTV reported early on Monday.
This will mean a lot of economic disruption as highlighted here by the Financial Times.
the manufacturing hub of Suzhou has postponed the return to work of millions of migrant labourers for up to a week. Suzhou is one of the world’s largest manufacturing hubs where companies such as iPhone contractor Foxconn, Johnson & Johnson and Samsung Electronics have factories.
One can see a situation where supply chains will be interrupted and presumably inventories will rise until there is not more room to store them. This may add to what has been something of a Perfect Storm for manufacturing over the past year or so.
According to the FT there is another area which has been hit hard.
Railway transport on Saturday, the first day of the lunar new year, fell about 42 per cent compared with the same day last year, according to the transportation ministry. Passenger flights were down by roughly 42 per cent and overall transportation across the country declined about 29 per cent.
If Chinese travel forms are anything like those of the western capitalist imperialists with their rather thin margins it may not be long before some are in trouble which may be why we have seen this being announced.
Companies would receive support “through measures such as encouraging appropriate lowering of loan interest rates, improving arrangements for loan renewal policies and increasing medium-term and credit loans”, the China Banking Regulatory Commission said.
We get an idea of the feared impact on the travel industry worldwide via the @RANSquawk update on share price moves today.
Air France (AF FP) -4.6%
Kering (KER FP) -4.6%
easyJet (EZJ LN) -4.0%
LVMH (MC FP) -3.5%
Ryanair (RYA LN) -3.0%
Airbus (AIR FP) -2.5%
So the initial impact is on manufacturing and consumption especially travel. That will be hitting a Chinese economy that was already slowing with reported economic growth falling to 6.1% at the end of last year.
It may not be the best time for the FT to run with this.
Signs of a global recovery in manufacturing are starting to show
For example should the announcement below come to pass you would think it would have to affect trade between Germany and China.
GERMAN FOREIGN MINISTER MAAS SAYS WE ARE CONSIDERING EVACUATING GERMAN CITIZENS FROM CHINESE REGION AFFECTED BY CORONAVIRUS ( @DeltaOne )
That is certainly the picture being picked up by the price of crude oil which has been falling the past few days.
The coronavirus could cut into demand by around 260,000 bpd and reduce oil prices by about $3 per barrel, according to a report from Goldman Sachs. However, in the days following the publication of that estimate, oil prices fell by even more than $3. ( OilPrice.com ).