How the Coronavirus Threatens the Global Economy and Lessons to be learnt

Can the Coronavirus Outbreak Become the Black Swan Event to the Global Economy?

As we all know, the Coronavirus that is currently spreading across the world has been dominating the headlines and news cycles as well as causing worries for both Chinese and the broader travellers and citizens of many countries.

Indeed, it has spread as fast as it suddenly emerged into the global spotlight and worried policymakers around the world are scrambling to respond and devise effective ways to contain it as well as limit the damage that it can do to global trade and businesses that in turn would impact the global economy.

For instance, if the virus is not contained, it may lead to more countries stopping travel to and fro to China and can also lead to businesses refraining from trade with their Chinese counterparts. Considering that global trade is heavily dominated by the Chinese, the Coronavirus has the potential to become a Black Swan event that can tip the global economy into recession.

Indeed, the global business community is restless and dreading the prospect of a recession and a slowdown on the back of tepid growth much like the Lehmann Shock that led to the Great Recession of 2008.

A Blow to Globalisation and the Impact of Disrupted Global Trade Links

Moreover, the rapid spread of the Coronavirus and the risk of contagion means that global businesses would be under pressure from their domestic customers to sever links with China for some time to come as well as at least until the threat of disease and spreading to them is not only reduced but, also completely eliminated.

This can very well deal a blow to globalisation since citizens worldwide as well as politicians in many countries can interpret this as the effect of a global economy that has been integrated way beyond anybody’s control.

Indeed, just as the Great Recession of 2008 was the first major blow to globalisation and the global project, the Coronavirus threatens to be another such event that can upend the gains made by globalists in recent years.

As air travel is banned and as Western citizens evacuate from China, chances are that there would be no interactions between the West and Asian countries and China that include employees of Global Corporations moving back to their home countries.

This certainly dooms the prospect of global firms as well as domestic ones worldwide as China is both the Factory of the World and the Raw Material Supplier.

We Need Balanced Reporting and Not Hysterical Coverage Causing Fear and Panic

Having said that, there are some sanguine voices that appeal to people not to be swayed by emotions too much and instead, approach the issue in a logical and well thought out manner.

Indeed, the worst that can happen during Black Swan events is the fear and panic that multiply the impacts and lead to widespread disruptions.

Therefore, the line taken by many policymakers is that it is better to prepare and prevent as well as pre-empt possible disruptions and not carried away by the fear mongering and the scare mongering that is in play at the moment.

The point here is that the global media is certainly not helping matters with its Doom and Gloom reporting and hence, there is a case to be made for more restrained and less hysterical reporting.

On the other hand, the response of the Chinese to the outbreak of the Coronavirus has been less than helpful and indeed, been shrouded in secrecy and denial.

This is not definitely what is expected in a time like this and more so, when such stances fan hysteria and not help the cause of the well meaning doing their best under trying circumstances.

Lessons for Policymakers and Business Leaders in Times of Global Pandemics

Another important point to note here is that the outbreak and the subsequent spread of the Coronavirus teaches us important lessons on how to deal with Pandemics in the Global Economy.

Indeed, policymakers and business leaders can well do to learn that it is not only war or economic events that pose risks to the global economy but, also manmade disasters such as the pandemics that have the potential to bring down the global economy.

Of course, the common thread behind all risks is that we are too interconnected and integrated and hence, any event happening anywhere can lead to disruptions everywhere and to everyone.

Moreover, pandemics impact the survival of the people even in faraway countries unlike other risks that are limited in their impact.

Indeed, the Coronavirus is the perfect example of a Worldwide Medical and Health Emergency in the same manner in which the Collapse of Lehmann Brothers was a Global Financial Catastrophe.

A key lesson that policymakers can learn is that there is a need for countries worldwide to be transparent and accountable in such cases and not hide behind veils of disinformation.

At the same time, there is also a need for better global cooperation and coordinated responses that can go a long way in mitigating the impact of such crises.

Conclusion

Last, as mentioned earlier, the Coronavirus can impact you and me as well even if we have nothing to do with China and are simply sitting in our homes.

Therefore, it is our suggestion that preparation and caution while interacting with others and especially those who have travelled abroad or to China is advised.

Moreover, be alert to the current updates from the authorities and stay protected.

To conclude, we hope that the Coronavirus is contained in time and the impact to the global economy is minimized.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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