As it stands, the Coronavirus chaos could still be contained in economic terms inside the first quarter. March is barely underway and cases are already falling in China, the original source of the outbreak.
On the other hand, they’re rising virtually everywhere else and it’s not known whether the trajectory the infection rate takes will be affected by the onset of spring in the northern hemisphere.
Markets, initially sanguine, took sudden fright, recovered, and now remain distinctly nervous. Gold rose in mid-February up to a high of around US$1,680, only to drop back to under US$1,580, before making up all the lost ground again. Going into the weekend, the price stands at US$1,682 per ounce.
Volatility, meanwhile, hit a five-year high on 3 March, as measured by the eponymous CBOE Index.
This all tells us that uncertainty is influencing markets to a degree unprecedented in the recent past, and that investors looking for a steer or any sense of direction might have to wait a little bit longer.
Because the signals are mixed all over the place. Donald Trump’s messaging in the USA has been inconsistent, Chinese data is unreliable, previous economic forecasts are still being re-written, all while analysts are still trying to work just what kind of a shock coronavirus will really deliver to the global economy.
On the demand side, while the variables aren’t clear, the nature of the calculation is straightforward enough.
“We now think that COVID-19 will be a material headwind to US growth in the near term,” S&P Global Economics said on 3 March.
"We estimate 1% average sequential (seasonally adjusted annualized) US GDP growth in the first two quarters of 2020 versus 2% pre-virus. The economy should rebound in the second half of the year as consumers release pent-up demand and firms rush to fill up back orders and restock inventories.”
S&P then went on to talk about the irreversible hits to discretionary spending and what it called “suppliers' capacity to meet demand.”
Put more simply, as well as a shock to the demand side, which is what we’ve seen in all the economic crises in recent years, there could also be a shock to the supply side. This is something that the global economy has much less experience of in its current form, and which therefore may end up proving more of a challenge and end up driving significant change down the line.
After all, just-in-time fulfilment may be the most financially streamline way of organising the movement of goods and the corresponding transfers of funds. But if disrupted in any way, one unfulfilled order may end up having a domino effect all the way down the supply chain.
Or to put it another way, if you can’t get parts and you have no inventory you can’t make anything. That's the reasoning behind the UN's recent talk of a US$50bn hit to exports following China's lockdowns.
Once-upon-a-time, stockpiling was deemed prudent. And then the accountants came along and told us all that stockpiling represented one of the cardinal sins of the modern economic system – an inefficient deployment of capital.
Stockpiles, after all, don’t offer a return. Except they can do, in times of massive supply chain disruption.
It seems unlikely that many major companies will take on board this lesson, once the coronavirus crisis recedes. But it is possible that one or two governments might. After all, we live in an interconnected world, where very few countries have the agricultural resources to feed themselves if the supply lines go down. Yes, it could get as basic as that. But when there’s a killer virus on the loose people start to think a bit differently.
And as far as the weak spots in globalisation are concerned, that might be no had thing.