Asiapacific Security

COVID-19:

Impact and Implications?

KB Teo

SYNOPSIS

COVID-19 first broke out in Hubei province, China, on 23 December 2019. It has claimed more than 1,000 lives and 66,000 cases in China. The WHO is concerned that COVID-19 is spreading rapidly to the rest of the world.

COMMENTARY

The new coronavirus, now known as Covid-19, was first encountered in Wuhan, China, in December 2019. It has gone on to affect over 80,000 people around the globe, causing over 2,700 deaths, reported the Guardian newspaper. The ongoing COVID-19 outbreak has hit the Chinese economy dramatically because of measures countries have taken to restrict the movement of people. Such restrictions have knock-on effects on labour migration, household consumption, travel and tourism, and operation of shops and factories, reported CNA.

On 21 February 2020, the Italian authorities announced that a cluster of 16 cases of covid-19, had been detected around Codogno, a small town in Lombardy 60km south-east of Milan. By the next day the number was up to 60, and five elderly people had died. On the 23rd “red zones” were set up . Inside the zones there is a strict lockdown; outside 500 police officers and soldiers stop people from leaving, reported the Economist.

On the same day the government of Lombardy ordered the closure of any establishment where large numbers of people gather, including cinemas, schools and universities. Inter Milan has missed a home match. The legendary opera house, La Scala, is shuttered; sightseers are barred from the cathedral—though worshippers are not.

Iran, where the first covid-19 cases were reported two days before Italy’s, has also closed schools and cancelled football games. There too, though, worship continues, with what appear to have been dire consequences. The ceaseless flow of pilgrims to the mosques and shrines of Qom has continued despite the city being the site of the first cases.

The outbreaks in Italy and Iran, along with a large one in South Korea, have convinced many epidemiologists that attempts to keep the virus contained within China have run their course. It will now spread from second countries to third countries and on around the world. As of February 27th, cases had been reported in 50 countries. Studies suggest that the number of people who have left China carrying the disease is significantly higher than would be inferred from the cases so far reported to have cropped up elsewhere. This suggests that the virus’s spread has been underestimated. Some public-health officials still talk in terms of the window for containment coming closer and closer to closing. In reality, it seems to have slammed shut.

As of the morning of 27 February 2020, stock markets had fallen by 8% in America, 7.4% in Europe and 6.2% in Asia over the past seven days. The industries, commodities and securities that are most sensitive to global growth, cross-border commerce and densely packed public spaces got whacked particularly hard, with the prices of oil and shares in airlines, casinos and hotel companies all tumbling.

Investors have taken refuge in assets that are perceived to be safe: yields on ten-year Treasury bonds reached an all-time low of 1.3%. The place least hit was China, where a huge sell-off took place some time ago. Investors, like some public-health officials, are starting to think that the epidemic there is, for now, under control. But if economic models developed for other diseases hold good, the rich world stands a distinct chance of slipping into recession as the epidemic continues. That will bring China, and everyone else, a fresh set of problems.

The impact of COVID-19 outbreak on the global economy could be more severe than the impact of the other major outbreaks in recent history e.g.: SARS (2002-2003), and Ebola (2013-2016). For many reasons – the origin of the COVID-19 should be compared to SARS epidemics which originated from the Chinese Guangdong, reported IHSmarkit. SARS or severe acute respiratory syndrome was a viral respiratory disease of animal origin caused by the SARS coronavirus (SARS-CoV). Between November 2002 and July 2003, an outbreak of SARS in southern China infected a total 8,098 people (mostly in China), resulting in 774 deaths reported. in 17 countries (with a fatality rate of 9.6%), with the majority of cases in mainland China (5,327) and

Hong Kong (1,755). No cases of SARS have been reported worldwide since 2004.

For many people outside of China – not least the sizable number who have a retirement account that includes Apple stock – the impact of COVID-19 got a lot more tangible when the iPhone maker had to revise its revenue guidance earlier this week as a result of the spreading coronavirus, reported the WEF.

Covid-19 is a grave threat to the market’s poise. News from Italy of the biggest coronavirus outbreak outside Asia led to a 3.4% decline in the s&p 500 index of American stocks on February 24th, the biggest one-day fall for two years. The rout encompassed global stock markets, which were down sharply from highs reached earlier in February. As The Economist went to press, the markets remained nervy. In the face of such uncertainty, more days like Monday are to be expected.

Investors have, sensibly, tried to calculate which assets are most exposed to the shock. Copper, an economic bellwether, plunged. The worst-hit stocks were of firms that rely on far-flung supply chains, such as carmakers; or are directly affected by restrictions on travel, such as airlines; or are most exposed to a China-led global slowdown, such as oil firms. Investors scrambled for safe assets. Gold reached a seven-year high. The dollar rallied. The yield on ten-year Treasury bonds fell to an all-time low of 1.29% on February 27th, reported the Economist. A bigger worry is credit markets and in particular corporate debt, which has soared over the past decade. A sharp rise in borrowing costs would hurt firms that need to roll-over maturing bonds and would also rattle America’s huge private-credit markets.

The last big global growth scare in late 2018 caused a panicky sell-off that threatened to become a credit-crunch. So far the interest-rate spread over Treasuries demanded by investors to hold high-yield corporate paper has widened to 4.3 percentage points, with much of the impact felt by energy-sector bonds But new issuance has halted—by February 26th Wall Street had gone three days without any high-grade offerings, according to Bloomberg. If that continues there will be a corporate liquidity squeeze.

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KB Teo is a former diplomat with the Singapore Ministry of Foreign Affairs. He attended the UN General Assembly as part of the MFA delegation.