nCoV, the little troublemaker nobody anticipated...

The trade agreement between China and the USA is about to become irrelevant due to a microscopic saboteur called the coronavirus 2019-nCoV.
(Click to enlarge.)
(© Satrapia)

While international organizations such as the IMF, the OECD or the ADB are not commenting so much on the potentially devastating economic consequences of the pandemic for both China and the entire planet, no one is so naive as to believe that we could get out of this crisis without a scratch. World leaders, starting with Donald Trump, are trying to reassure people and markets to prevent uncontrollable panic attacks. They are counting on Beijing’s brutality to confine people and the virus, while keeping their fingers crossed that the epidemic will not reach their own countries. For once, China will not be blamed for being authoritarian.

For my part, I side with Babak Khandani, who believes that as of January 26, the death toll has already reached 23,000 and that it is highly likely that 15 mln people will die in mainland China alone. China will not emerge intact from this epidemic, dragging the world’s economies - already weakened by the financial bubble - into a long-lasting recession. In my view, the most vulnerable country is the United States.

Clearly, air transport and the tourism industry will be the first victims of China’s shutdown. While the shutdown is already driving down oil prices, it will also lead to a shortage of the cheap goods that we import from China in astronomical quantities. The consequence will be a significant increase in prices which will not please Amazon, Apple or any manufacturer using Chinese components in its products.

In this context, the Belt and Road Initiative will take a severe blow, as China will be forced to divert funds to heal its internal wounds to the detriment of its external expansion. All this comes at a bad time when IMF experts were already predicting a decline in growth for China (5.8% in 2020 vs. 6.1% in 2019).

Let’s just pray that the epidemic doesn’t spread to the Indian subcontinent where states have no power over an undisciplined (or “free”, as you like) population to force them to stay home for three weeks. ■