Opinion

Coronavirus could push major economies into the abyss

Coronavirus could push major economies into the abyss

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Military personnel outside the Duomo cathedral, closed by authorities because of the coronavirus outbreak, in Milan. (Reuters)

As I have said here before, it is wise that even the best political risk analyst approaches the world with a degree of humility. For example, if you had told me at the beginning of the year that I would spend the lion’s share of my February writing about a possible pandemic originating in Wuhan, I would have questioned your sanity. But life, while it does have patterns, does not move in a straight line. The absolutely central question remains: What causes things to actually happen and can they be foreseen?
Here, inevitably, we come back to the coronavirus. For all the global fear this near-pandemic has generated, I think the enduring political risk consequence of all that is going on is likely to be economic. While the virus is not the main cause of the possible economic calamities awaiting China, Iran and Italy — all of which were already teetering on the edge of economic downturns or worse — its unforeseen deleterious consequences could well provide the final nudge into a much deeper abyss.
The economic mismanagement that preceded the black swan incident was there for all to see; all it takes is a final unexpected setback to reveal how the world was living on borrowed time.
Of the three, superpower China is most likely to ride out the economic storm, but there remain serious risk concerns. For one thing, a full month after the paramount leader, Xi Jinping, announced to the world the extent of the coronavirus, much of the country, even those portions little-affected by the virus, have yet to return to work.
This, coupled with the fact that a gigantic area around Wuhan — the center of the virus outbreak — is under full quarantine (more than 50 million people, or approximately the population of Spain), means that every day the virus remains untamed is another body blow squarely directed at the Chinese economy. The longer this lasts (and at present the coronavirus shows no signs of burning out in this centrally affected region), the harder it will be for an embattled Beijing to rebound.
But, even before the coronavirus struck, there were some under-reported danger signs flashing regarding the continued vitality of the Chinese economy. Gross domestic product (GDP) growth had naturally slowed from its double-digit prime to an official number of 6 percent, though the real figure is universally thought to be lower — a natural consequence of the economy maturing.
Structurally worse, China’s perilous demographic position — a result of the decades-long one-child policy — means the country could well grow old before it grows rich. All of this was already well in place ahead of the advent of the coronavirus.
One long term and hugely disadvantageous consequence of the virus for Beijing is that China’s bungling initial response will accelerate the decoupling of the US and Chinese supply chains; a process already begun with the US-China trade war. The coronavirus could well mark an unexpected chapter in the undoing of globalization itself.
Italy’s glaring economic inadequacies are more advanced and, as a result, the danger from the unforeseen shock of the coronavirus is more immediate. A simple, glaring fact must be kept in mind when discussing the country: Italy is poorer now, uniquely in Europe, than it was at the time of the Great Recession in 2008.
The most recent GDP numbers emanating from Europe only confirm this decade-long sclerosis. In the fourth quarter of 2019, Germany, the motor of Europe, stagnated (growing at zero percent), while the economies of France (minus 0.1 percent) and Italy (minus 0.3 percent) actually went backwards. Compared with recent relatively buoyant growth rates in economic competitors China and the US, the past decade can be characterized in political risk terms as a time when Europe was simply left behind.
Italy’s fragile economy, bereft of anything approaching political leadership and direction, is greatly dependent on tourism, which accounts for fully 13 percent of its GDP. With the continent’s coronavirus cases centering on Lombardy and the Veneto, it is hard to imagine tourism not taking a fearful hit this year. And, with this, Italy may well fall off the economic tightrope it has long been walking on and into the abyss.

All it takes is a final unexpected setback to reveal how the world was living on borrowed time.

Dr. John C. Hulsman

Iran, despite its hapless and feckless denials, is another emerging center of the outbreak. Years of governmental economic mismanagement and the surprisingly effective sanctions ushered in by the Trump administration as a result of its regional adventurism had already left it a basket case; it is projected that GDP slumped by a whopping 9 percent last year. A further shock to this imploding system could well lead to political and economic upheavals that have not yet been thought through.
In each case, the coronavirus has not caused the problems to come; rather the epidemic amounted to the last unforeseen negative consequence, enabling an already precarious situation to get out of hand. This is how the world really works, and how those of us who do political risk for a living must be thinking as the planet weathers this latest, fearful, plague.

  • Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also senior columnist for City AM, the newspaper of the City of London. He can be contacted via www.chartwellspeakers.com.
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WHO raises global virus risk to maximum level

The virus has killed more than 2,800 people and infected over 83,000 worldwide. (Getty Images/AFP)
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Updated 29 February 2020

WHO raises global virus risk to maximum level

  • Oil prices also dived four percent to their lowest levels for more than a year
  • China reported 44 more deaths on Friday

GENEVA: The World Health Organization on Friday raised its global risk assessment of the new coronavirus to its highest level after the epidemic spread to sub-Saharan Africa and caused financial markets to plunge.
WHO chief Tedros Adhanom Ghebreyesus said the risk was being raised to “very high” because of the continued increase in cases and the number of new countries affected in recent days.
These developments “are clearly of concern,” Tedros told reporters in Geneva.
But he added: “We still have a chance of containing this virus, if robust action is taken to detect cases early, isolate and care for patients and trace contacts.”
The virus has proliferated around the globe over the past week, emerging on every continent except Antarctica, prompting many governments and businesses to try to stop people traveling or gathering in crowded places.
Switzerland became the latest country to announce drastic measures on Friday, saying all events with more than 1,000 participants would be suspended until March 15.
The ban forced the cancelation of the Geneva International Motor Show — a major item on the global auto industry calendar — that was due to start next week.
Carnival celebrations, rock concerts and a major watchmaking trade show also had to be scrapped.
The virus has killed more than 2,800 people and infected over 83,000 worldwide — the vast majority in China — since it emerged apparently from an animal market in a central Chinese city in late December.
The number of deaths and new infections has been tapering off in China, following unprecedented quarantine efforts locking down tens of millions of people in the worst-hit cities.
But infections elsewhere have started to surge, with Iran, Italy and South Korea becoming the major new hotspots and cases being confirmed in around 50 countries.
“We see a number of countries struggling with containment,” said Michael Ryan, head of WHO’s health emergencies program.
The WHO has voiced particular concern about Africa’s preparedness, warning that the continent’s health care systems were ill-equipped to respond to a COVID-19 epidemic.
Cases had previously been reported in Egypt and Algeria, but not in the sub-Saharan region until Friday when Nigeria reported its first case: an Italian man in densely populated Lagos.
Stock markets around the world have plummeted this week as it has become increasingly clear the virus will take a huge toll on the global economy.
“Stock markets are well on their way to their worst week since the global financial crisis,” said Craig Erlam, senior market analyst at Oanda trading group.
Several companies have said they expect the virus to hit their earnings because of weaker demand.
Oil prices also dived four percent to their lowest levels for more than a year, with Brent oil for April delivery sinking as low as $50.05 a barrel.
Analysts have warned that China, the world’s second largest economy, will see a major cut in growth this quarter as the country remains largely paralyzed by quarantines and containment measures.
Still, signs in China offered hope that the outbreak could be contained.
China reported 44 more deaths on Friday, raising its toll to 2,788, with 327 new cases — the lowest daily figure for new infections in more than a month.
The main concern for health officials is outside of China, with governments this week forced into increasingly drastic measures in an attempt to battle spiralling epidemics.

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The biggest death toll outside China is in Iran, where 34 people have died.
As elsewhere, the virus has mostly killed the elderly or people who had other health conditions.
South Korea also now has the most cases outside China, with more than 2,000 infections and 13 deaths.
The virus has had wide-ranging impact, even forcing K-pop megastars BTS to cancel four Seoul concerts due in April.
In Japan, the health ministry said a British man who was on board a coronavirus-stricken cruise ship quarantined near Tokyo had died, bringing the death toll to six.
The unidentified man’s death is the latest linked to infections on the Diamond Princess cruise ship, where more than 700 other people tested positive for the illness.
The death comes as the governor of Japan’s rural northern island of Hokkaido urged people to stay at home this weekend in a desperate effort to contain the outbreak.
In Europe, the largest epicenter is Italy with 650 cases and 17 deaths — mostly in cities in the north.
Wide-ranging measures to halt the spread of the virus have affected tens of millions of people in northern Italy, with schools closed and cultural and sporting events canceled.
Experts said the virus had probably “circulated unnoticed for several weeks” before the first confirmed cases — possibly since January.
Belarus, Denmark, Iceland, Lithuania, Mexico and New Zealand were the latest countries to report new cases.


Keir Starmer elected new UK Labour leader

Updated 14 min 24 sec ago

Keir Starmer elected new UK Labour leader

  • The 57-year-old former chief state prosecutor defeated Corbyn loyalist Rebecca Long-Bailey and backbencher Lisa Nandy in a lengthy campaign
  • Starmer, who was Labour’s Brexit spokesman, called his election “the honor and privilege” of his life

LONDON: Pro-European centrist Keir Starmer was on Saturday unveiled as new Labour party leader, heralding a shift in Britain’s main opposition party after a crushing election defeat under veteran socialist Jeremy Corbyn and years of ideological infighting.
The 57-year-old former chief state prosecutor defeated Corbyn loyalist Rebecca Long-Bailey and backbencher Lisa Nandy in a lengthy campaign sparked by Corbyn’s resignation after December’s loss at the polls to Boris Johnson’s Conservatives.
Angela Rayner becomes the new deputy leader, Labour announced on Twitter, after it was forced to cancel a special conference because of the coronavirus outbreak.
Starmer, who was Labour’s Brexit spokesman, called his election “the honor and privilege” of his life and vowed to “engage constructively” with Johnson’s Conservative government.
Johnson immediately offered his congratulations and the pair spoke, with Starmer accepting an invitation to a government briefing on COVID-19 next week.
“Keir offered to work constructively with the government on how best to respond to the coronavirus outbreak,” his spokesman said.
Starmer himself vowed to reunite Labour, after deep rifts between supporters of socialist Corbyn’s hard-left ideals and centrists, and wrangling over its Brexit strategy.
He immediately addressed the issue of anti-Semitism that Corbyn was accused of failing to tackle, which tarnished the party’s reputation and caused Jewish members to leave in droves.
“Anti-Semitism has been a stain on our party. I have seen the grief that it’s brought to so many Jewish communities,” Starmer said.
“On behalf of the Labour Party, I am sorry.
“And I will tear out this poison by its roots and judge success by the return of Jewish members and those who felt that they could no longer support us.”
Starmer, who won a resounding 56.2 percent of the vote of Labour members, acknowledged the party had “a mountain to climb,” after four straight general election defeats — two under Corbyn.
But he vowed: “We will climb it.”
He added: “I will lead this great party into a new era, with confidence and with hope.
“So that when the time comes, we can serve our country again in government.”
Labour grew out of the trade union movement but moved to the political center under former prime minister Tony Blair, who was in office between 1997 and 2007.
Corbyn spent a lifetime on the sidelines because of his left-wing views, and his election as leader in 2015, on the back of a huge surge in party membership, was a shock.
MPs and party members have been locked in an ideological battle ever since.
“There’s really a lot of bad blood and mistrust,” said Steven Fielding, a political expert at the University of Nottingham.
“The first challenge (for the new leader) will be to put a team together that at least looks like it has the ability to unify the party.”
Winning back voters who defected to the Conservatives is also top of Starmer’s “to do” list if Labour is to have any hope of victory at the next election, currently scheduled for 2024.
Brexit was a toxic issue for the party, torn between euroskeptic supporters in many northern English towns and pro-EU voters in the big cities such as London.
Starmer was opposed to Brexit and played a key role in moving Labour to support a second referendum on leaving the European Union.
However, voters were not convinced and Johnson took Britain out of the bloc on January 31.
The coronavirus outbreak has brought a more immediate challenge.
Johnson’s government has imposed draconian curbs on public movement to try to stop the spread — measures backed by Labour, although it successfully pressed for more parliamentary scrutiny of new police powers.
The Conservatives have also promised eye-watering sums to keep businesses and individuals afloat, wading into traditional Labour territory.
In response, Johnson’s popularity ratings have shot up.
A YouGov survey last week found that 55 percent of the public had a favorable opinion of him, up from 43 percent a week earlier.
Some 72 percent thought the government was doing well — including a majority of Labour voters.
Ministers have been on the back foot in recent days, however, over the lack of testing for coronavirus and protective equipment for health care staff.
Labour has been pressing the issues and Starmer said this would continue.
“My instinct will be to be constructive but to ask the difficult questions,” he told a Guardian podcast this week.