China has been effectively shut down. This will have an immediate impact on consumption in China and will be likely to affect global supply chains if it persists. International trade, already affected by the trade war, will probably take longer to accelerate than it might otherwise have done.
Policymakers have eased monetary conditions to ensure there is no disruption in the availability of money, and in China there has already been some fiscal easing in the form tax breaks and subsidies for both businesses and households.[i]
China continues to astonish the world by building a new 1000 bed hospital in under two weeks. Impressive as this is, it is also a reminder that the Chinese can switch on infrastructure spending very quickly when required.
According to the South China Morning Post the number of new suspected cases is falling. But the numbers of confirmed cases, serious cases and deaths are still rising. That said, the ability to diagnose has improved too.
But so too are the numbers of recovered patients.
As I write there have been 28,339 cases, 565 deaths and 1208 full recoveries.[i]
All bar 2 deaths to date have been in mainland China,
By comparison in the U.S. alone, the flu has already caused an estimated 19 million illnesses, 180,000 hospitalizations and 10,000 deaths this season, according to the US Center for Disease Control and Prevention (CDC). [ii]
We do not yet however have a vaccine for coronavirus, nor do we have a clear understanding of the infection rates. Uncertainty remains, but few other countries could act to control the movement and behaviour of people in the way China has.
The economic effects are likely to be a sharp slowdown followed by a rapid recovery. Previous disasters have had such outcomes, not just in the cases of SARS and bird flu, but also with the consequences of the earthquakes in Japan, which hit Kobe[iii] and Fukushima[iv].
Markets seem to be expecting this outcome.
If however the crisis persists then the Chinese economy could contract sharply. China has contributed almost a third of global growth for the last decade and this would cause a shock to the global economy. This would drive bond yields lower and equity prices too.
That is not the expected outcome, but it remains a risk.