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Coronavirus: Impact on the Economy

January 31, 2020

The coronavirus is a spreading health concern around the globe. But should businesses be concerned about its impact on the economy?

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ITR Economics Divider

 

Transcribed by Rev

Brian Beaulieu:
Hi, this is Brian Beaulieu from ITR Economics. I'm the CEO and Chief Economist. Thank you for joining us for another edition of TrendsTalk. Today I want to talk about something that's very timely and hopefully won't be timely in the near term. It's about the coronavirus outbreak in China and we've even had some reported cases obviously here in the United States and elsewhere around the world. Viral outbreaks like this are obviously scary. Popular media is full of a [inaudible 00:00:47] entertainment and health officials worldwide are very quick to talk about the potential severity of any outbreak.

It's our job here at ITR Economics to think about this in some sort of useful economic context so that we can tell you whether this is a GDP shaping event, whether it's just a forecast altering event or whether this is an opportunity of some sort. So what we've done is we've put the current coronavirus outbreak in the context of prior outbreaks. Whether they've been in China or Hong Kong or Africa or other parts of the world. And to broaden the sample base even further, we've looked at other significant natural disasters like that tsunami in Japan, Hurricane Irma here in the United States.

The hurricanes on the East coast that have wrecked the East coast of the United States. All of those are huge, justly. So news events that have economic implications. The question to us is, was this therefore mean that the economy is going to do poorly, the economy is going to do better. How's the stock market going to react to all this? We already know that the stock market has already reacted negatively, went down around 1.6, 1.9% depending on how you measure it over the last five days. But it's rebounding here today in day six.

The apocalypse has never occurred in the past. So the question then becomes, is it going to occur this time? Well if it is going to occur this time, that would truly make it a black swan event because, well we had the plague in the middle ages, there's nothing in recorded modern times to give us any sort of dialing in on a global play. But the odds are it's not going to happen and it hasn't happened so far and modern medicine and containment is better than it ever has been. Historically when we have looked at prior cases, initial concerns always have presented themselves ultimately as buying opportunities. I just said it went down for five days, but now it's on the way back up. This stock market, it's going to be rising higher based on economics and even today's news, United Technologies was up because their earnings are up.

3M is a little soft today because of their concerns or market's concerns or their business in China, but China's economy is so big just like the United States, although it's not as big as United States. This isn't going to knock their GDP off track. This could be an instance where we'll see some micro economic industry changes, like passenger revenue miles on route to and from China. Maybe trade in medical supplies maybe on the output from the impact that cities or province. But all that's going to be relatively short term and it's relatively small compared to the size of China's economy. Just like the hurricanes and other outbreaks that we've seen here in the United States have been very small events, taken in the construct of just how large the US economy is. So from our perspective, I mean you got to take these things on a case-by-case basis when it comes to the micro economics. But we're not changing our GDP forecast for the US, for the globe.

Not even tempted to change it, visa be China right now. What we're going to do is watch the leading indicators very carefully. China's global, US. And if they begin to shift because of something we're not seeing, then we'll react to that. Then we will report out on that. But that's not happening yet. And that's one of the benefits of us using monthly data. We avoid a lot of the noise that comes with daily gyrations in the stock market or people's perceptions. For us it's all about the numbers and the numbers right now are telling us stay the course. The economy globally is already slowing down and that includes the US. Deceleration is going to continue into probably QQ2020, some cases it'd be one Q depending on the industry. Some cases it'd be three Q 2020 depending on the industry. But the world is going to be on the upside of the cycle by the end of 2020 and we're going to see global rise in 2021. And if we really are going to have the apocalypse because of norovirus, there isn't much you and I are going to do about it anyways.

So for now we should just play the odds, plan on what is normal or has always happened before and stick to the business of making money. We'll let you know if the leading indicators are telling us otherwise. We'll blast it out from the heavens. But for right now, you just stay the course. Work your plans and play into the business cycle and manage through the business cycle. That's all we can do. That's all you need to do. This is Brian Beaulieu, CEO and Chief Economist of ITR Economics. Thanks again for listening to another TrendsTalk.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.