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Calculating Early Effects of COVID-19 on Global Economy

Calculating Early Effects of COVID-19 on Global Economy
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By Monday, 20 April 2020 04:39 PM Current | Bio | Archive

Calculating the economic effects of the deadly COVID-19 pandemic is a task that would be difficult even for the world’s most talented and well-researched financial analysts.

However, we have already started to see economic data emerge from the aftermath of the virus in China, which is the earliest known epicenter of the novel coronavirus disease.

For countries around the world, this is information that will continue to be valuable because it offers clues about how other economies might be impacted elsewhere down the line.

For investors and consumers in the United States, these types of economic developments are critical because they can help determine whether prior trade war agreements could be at risk at some point in the future.

During the first-quarter period of 2020, Gross Domestic Product (GDP) figures out of China showed a massive contraction of -6.8% on an annualized basis. China began keeping its quarterly GDP records in 1992, so this essentially means that the recent decline is the largest the country has seen since the end of its Cultural Revolution (which occurred in 1976).

However, if we view these numbers on a quarterly basis, the results are even worse. Relative to the fourth-quarter period of 2019, China’s most recent output figures actually indicate contractions of -9.8%. Essentially, these data reports compare the country’s economic growth rate to its performances one year earlier, so this helps mark the period after COVID-19 was first discovered in the city of Wuhan.

In response to the discovery, China enacted strict lockdown measures on over 700 million citizens and many businesses were required to cease operations for more than two months. But these attempts to slow the virus have clearly created unintended financial disruptions and the long-term global consequences of these events could be larger (on a dollar-for-dollar basis) than anything any other situation we have seen in history.

So, while the city of Wuhan in Hubei Province has officially re-opened for business, obvious economic ramifications have already made themselves felt throughout the country and it has become evident that “returning to normal” might not be as easy as previously thought.

Global supply chains have been decimated and consumer demand in retail markets has been largely limited to everyday household essentials (rather than luxury items). As a result, the full-year outlook for import/export trade has been devastated as consumer demand for products stamped “Made in China” has already shown signs of plummeting.

Furthermore, China’s latest GDP report indicates declines of -8.4% in the industrial output component, which is a critical sector for any manufacturing economy. Even more alarming is the country’s recent decline in retail sales, which dropped by an incredible 19% during the first-quarter period.

But while the list of economic ramifications might seem endless, it’s important for investors to remember that China’s disappointing GDP figures are likely just the first example of a highly problematic global trend. In other words, we could easily start to see similar economic data reports from countries in many different regions around the world.

When making economic projections over the next few quarters, all of this means that it would not be surprising if China's economic troubles act as a harbinger of things to come.

Countries around the world now face similar challenges, as restricted business operations and crippling unemployment trends threaten both developed and undeveloped regions.

These are painful economic realities that all nations must approach with vigilance and planning, which is why investors can greatly benefit by taking cover using protective asset strategies.

Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.

© 2020 Newsmax Finance. All rights reserved.


   
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Calculating the economic effects of the deadly COVID-19 pandemic is a task that would be difficult even for the world’s most talented and well-researched financial analysts.
world economy, calculating, early, effects, covid-19
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2020-39-20
Monday, 20 April 2020 04:39 PM
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