China’s coronavirus economic cardiac arrest

In the best of times, an economic cardiac arrest in China, the world’s second-largest economy, would not be good for the global economy. But these are far from the best of times. This makes it all the more difficult to understand both the financial markets’ and world economic policymakers’ complacency about the real risk of a coronavirus-induced global economic recession in the months immediately ahead.

By now there should be little doubt that China is experiencing the equivalent of an economic cardiac arrest.

The number of those infected with the coronavirus is already some ten times higher than was the case with the 2003 SARS epidemic. At the same time, in an effort to bring the epidemic under control, around 150 million Chinese residents remain under lockdown. That is preventing Chinese factories from returning to normal production schedules, causing havoc in the Chinese transportation system and inducing Chinese consumers to scale back on their purchases.

Already China’s economic problems are reverberating throughout the global economy. As underlined by Apple and Hyundai’s recent earnings warnings, global supply chains, reliant on in-time Chinese parts deliveries, are being seriously disrupted. At the same time, commodity export-dependent emerging market economies are being dealt a body blow by a Chinese induced decline in international commodity prices, while those economies reliant on Chinese tourism are being severely impacted by a generalized suspension of international flights to China.

The world economy is hardly in a good state to withstand a Chinese economic shock. Already before the start of the coronavirus epidemic, Japan, Germany and the United Kingdom, the world’s third, fourth and sixth largest economies, respectively, were all on the cusp of economic recessions. Meanwhile, large emerging market economies like Brazil, China, India and Mexico were all experiencing marked economic slowdowns.

Leave a Reply