Planning for Growth in a Post-Corona Reality

From massive selloffs in global financial markets to the closing of national borders, fears of the coronavirus hurting the world economy is all too real. The OECD has already lowered its growth project for 2020 to 2.4 percent from 2.9 percent, but also warned in early March that should the outbreak intensify and spread further, growth could be capped at 1.5 percent this year.

...the fact remains that this global health scare will lead governments, businesses, and individuals to reconsider how they operate in a highly integrated world where diseases can cross borders all too easily.

The Paris-based agency’s gloomy projection comes on the heels of the Federal Reserve, Bank of Japan, and the European Central Bank all signaling their willingness to take necessary steps to ensure that their economies remain stable. Meanwhile, finance ministers from the G7 are expected to hold a teleconference later this week specifically to address the COVID-19 outbreak. But while shifts in monetary policy and signs of G7 unity against the virus may lead to some short-term reassurance of financial markets, the fact remains that this global health scare will lead governments, businesses, and individuals to reconsider how they operate in a highly integrated world where diseases can cross borders all too easily.

It is, of course, easy enough to argue that there has been over-reaction to the corona outbreak.

The mortality rate of the disease remains relatively low at around 2 percent, but only for the elderly and for those with chronic diseases, which is no different from the usual seasonal flu. In short, this is not like the Ebola virus which is not only highly contagious, but also with a mortality rate of 90 percent after a few days of acute suffering. Although there are nearly 80,000 cases in China, 3,800 in South Korea, and nearly 1,000 in Japan, and the disease has spread across to Europe as well as the Middle East, infection usually won’t mean death in the vast majority of cases.

Global reaction to corona, on the other hand, has been far more acute than any recent contagion including Ebola, Zika, and SARS. Quarantines, flight bans as well as cancellations, school closures, and event cancellations are becoming part of daily life in much of East Asia and beyond, not just in Wuhan. Such disruptions have given ammunition to the anti-globalists, who see the viral outbreak as yet another justification to take protectionist measures and turn inward, building up psychological as much as physical borders.

Policymakers and business executives alike are beginning to see clearly the downside of over-dependence on China.

But an emotional, knee-jerk reaction towards building up trade barriers is only one of the possible longer-term results of the corona crisis. The de facto decoupling from China in response to the corona outbreak has also made all too clear the risks of depending too much on one country as a source of manufacturing. If the ongoing U.S.-China trade dispute has motivated corporations to diversify their supply chains, the latest concerns about corona have only increased the need to spread the risk and not depend too heavily on one market either for production or consumption, even if it is as big as China’s. Policymakers and business executives alike are beginning to see clearly the downside of over-dependence on China, and these concerns may well incentivize moves to diversify investment portfolios and even bring some key manufacturing sectors back to the home country.

With no end in sight to the spread of the disease, there is a need to assume that restrictions on mobility and travel both within and outside of national borders will continue to increase. Clearly, the virus has been far more disruptive and damaging to global growth than any trade negotiation. Even when COVID-19’s spread is contained and a vaccine is produced, the odds of another pandemic breaking out worldwide in the future are high. With that in mind, policymakers and corporate leaders alike will need to reassess how to mobilize capital and ensure economic stability in the future.

Follow Shihoko Goto, deputy director for geoeconomics and senior associate for Northeast Asia, on Twitter @GotoEastAsia.

The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center. Copyright 2020, Asia Program. All rights reserved.