Sergei Aleksashenko: The impact of the coronavirus on the economy is so far only based on fears

Cases of the coronavirus have already been found in Italy. US stock indices fell by more than 3% last Monday and investors are concerned with the scale of the epidemic. They believe that the outbreak poses risks for the economy of not only China but the entire world, too. Now, Nissan is going to suspend operation at half of its plants due to difficulties with supply of car parts from China. Invest Foresight spoke to prominent economist Sergei Aleksashenko about whether the epidemic is a real threat to the economy.

Credit: Valeriy Levitin

— Who knew that a disease outbreak could affect the economy so badly.

— Saying this is like asking if we can predict the future. If the coronavirus epidemic ends right now nothing will happen. Okay, there will be some disruption in technological chains. They will recover fast and nothing will happen afterwards.

It will be a totally different story if a global pandemic affects tens of millions of people, if there are no flight connections between countries; if people are panicking and the number of deaths reaches hundreds of thousands and even millions. All this will continue for three or four years. Then it will be valid to speak about changes in the world economy and global relations.

But in the current circumstances, I think what we are witnessing is mostly fears, circulated mainly by those who love catastrophic forecasts. Okay, China temporarily cut its oil imports. Oil prices dropped. But nothing will come of it. Just because it happened, nobody will find oil anywhere near Moscow or in the Moscow Region. I think it is too early to speak about the coronavirus being an actual threat to the economy. I am absolutely sure it will not happen today.

— What about the US stock market fall that already happened? Or Nissan’s decision? As far as I know, some companies were already planning to move their production facilities from China back to home countries and now… Looks like threats of outbreaks change the geography of economic relations after all.

 Companies do decide sometimes to transfer their production facilities from one country to another, usually for economic reasons.

For example, there is a well-known factory where iPhones are made. It employs 200K Chinese people. Where else in the world can you move this factory and where will you find 200K Chinese people to work there? Because I suspect there is no other workforce that can offer the same level of quality (doing manual labor) anywhere in the world. So it will be safe to say that until now, this kind of decisions had nothing to do with the coronavirus.

It simply does not work like that: so we a having a coronavirus epidemic, let us shut down a factory, load it onto a ship and move it elsewhere. Any large company takes one-two years to discuss and assess the situation before moving their production facilities … Such processes take quite a lot of time.

— So do economists consider such outbreaks one-time events only? And these force majeures are never considered in forecasts or plans?

— Let’s see: the coronavirus was preceded by the bird flu outbreak, which in turn was preceded by the Ebola virus epidemic, which in turn… Epidemics is something that simply happens from time to time, including new, previously unknown ones. But not one of them has yet managed to destroy an economy. Will economists take them into account? I believe is it superficial to consider such events as something possible in forecasts.

In theory, what if Moscow is hit by a large meteorite? It can happen. This almost happened in Chelyabinsk. But should we take this possibility into account? Should the Ministry of Economic Development, consider the possibility of a meteorite impact and develop relevant measures while making an annual forecast? This is nonsense.

In conclusion, I can say that first, none of the previous epidemics has been so large-scale and serious to influence global economy. Second, unexpected events are indeed unexpected, so you cannot include them in any forecast. Who could have thought of a coronavirus outbreak four months ago? And how can it be forecast if we never know what can happen? It could be some African swine fever and all pigs die… Such events, they are called black swans, can’t be predicted.

— But it was not as scary during the bird flu or the Ebola outbreaks as it is now: cities are closed, flights canceled, quarantine imposed… — This is not scary at all. The thing is that the Chinese government, which learned its lesson from the other epidemics, almost managed to contain the virus within one city. If the city wasn’t closed, the virus would have spread and the situation would have been far worse. It may look scary but it is a reasonable measure to prevent the epidemic spread. On the contrary, people are currently accusing the Chinese authorities for doing it too late, they say that the government knew about the virus and could have done the same earlier. But, again, these ‘scary’ measures are helping prevent the spread. And isolation is the only way.

By Elena Skvortsova

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