Belated Siren and Imminent Risks
Mar 24-2020
The WHO designated the COVID-19 outbreak as a global pandemic on March 11th, an action seen by Prof. Lu Feng of the NSD as a belated siren. On the day of the WHO announcement, 118 countries and regions – accounting for 85% of global population and 96% of global GDP and international trade - had reported the novel coronavirus cases.
Since the beginning of the new millennium, only the H1N1 flu originating from Mexico was declared a pandemic prior to the current one. The WHO’s foot-dragging this time might be due to previous criticisms of its over-reaction to the H1N1 flu, said Prof. Lu in a commentary.
The economic impacts could be unprecedented. China has borne the brunt, suffering from severe disruptions to industries and trade. In accordance with the global spread of the epidemic, American and European capital markets trembled and oil price plummeted, further dampening growth prospect worldwide.
The American economy has seen a significantly higher probability for a recession in 2020. The pandemic might be the trigger, but deeper causes such as structural predicaments are also to blame. In recent years, the US economy has demonstrated some stable symptoms reminiscent of the pre-crisis period: overflowing liquidity, razor-thin interest rates, high asset prices, lackluster productive investment, and over-dependence on consumption, among others. However, given the well-tested self-correcting capability of the US economy and society, it might be groundless to bet on a depression or debacle.
What confronts the euro zone and the EU might be even more serious than that on the other side of the Atlantic. The debt crisis that ripped through the euro zone ten years ago has left behind some root issues yet to be remedied. Brexit has dealt another major blow. As Italy languishes under the epidemic and Germany and France scramble to control it, euro and even the Schengen Agreement face a test bigger than the debt crisis.
Small economic bodies such as Singapore, Hong Kong, and Taiwan took precautions early on and have fared better with the virus. Nonetheless, they might be the first to feel the frostiness of global uncertainties. Japan and Korea have a serious epidemic in hand. Both are deeply integrated into the global value chains and can hardly avoid reeling from the acute impacts.
