I am not a medical
expert, hence I am holding back from commenting of the medical nature of the
virus. As an economist I am observing manufacturing disruptions in China spilling
over the entire world, causing dreadful knock-on effects in supply chains. The
outbreak of the virus fortunately coincided with the Chinese New Year
celebrations, when manufacturing customarily comes to a standstill for 3 weeks
and ahead of which period each year off-takers of Chinese factories stock up on
goods.
Nevertheless,
first symptoms of the epidemy in China have been observed in Poland with
distributors of goods produced in Hubei province, particularly of consumer
electronics. They declare they would run out of inventories completely if
deliveries are not resumed in April. Next stricken are producers who rely on
semi-processed components from China (here the automotive industry if most
frequently said to be badly affected). As first incidences of the coronavirus
were reported in Europe, tourism and transport have been dealt a sudden blow.
The stock
exchanges on all continents have suffered the worst week since financial meltdown
in 2008-2009. The broad index of the Warsaw stock exchange (WIG) has fallen by
14.2% over the recent week, marking one of the worst weeks since trading began 30
years ago. Melting valuations of stocks reflect fear of global recession caused
by the virus. At the moment I would not dare to predict how stock markets would
behave in the long run and I do not find myself competent to adjudicate whether
financial markets correctly price in the future (since there are too many
unknowns pertaining to the future).
I have
tried to learn possibly a lot about the coronavirus and the scale of destruction
it could perpetrate globally and I still find myself unable to assess whether the
risks are overestimated or underestimated. Precautions taken against the virus
are stringent, I wonder to what extent they are justified. Definitely bouts of
collective panic, as the ones reported in northern Italy, are not desirable,
yet they constitute a natural reaction of humans to an unidentified peril.
Media report
different figures on mortality. You can divide the number of the diseased to
those who have come down with the virus and arrive at around 3%, yet this
figure fails to take into account those ill who might die soon. If you exclude
those down with the virus whose fate is hard to predict, you will get a proportion
of those who have deceased versus those who have recovered at almost 10% which I
believe more accurately reflects the degree of the menace.
Across the
web, you can find opinions the hype about the virus is exaggerated, since it is
no different than a typical flu. Fools who write such rubbish fail to notice
three differences:
1) mortality
rate of flu (or its aftermaths) is below 0.1%,
2) there
are effective vaccinations and cures against flu,
3) the pace
of which flu spreads is slower and flu is harder to contract.
In Poland so
far no incidence of the virus has been confirmed. Since the period of winter
holidays is just over (several people returned from Asia or north Italy), this
is just a matter of days. I am pretty sure the coronavirus has already crossed
the borders of Poland, but I am not sure whether it has really not been
detected (and for what reason) or it has been detected, but the incidence
concealed to avoid panic. I also fear information from China have been dosed
out not to show the actual scale of the epidemy.
Though I do
not fear a potential disease, the virus has shortened my time horizon. A week
ago I only feared I would need to work overtime to work out debt restructuring
plans for my affected clients. Today I wonder whether my business trip somewhere
near Czech border scheduled for Thursday will take place. Making any holiday
plans has been put on hold, but besides – business as usual. I am waiting for
the story to unfold and watch it carefully, since these days will go down in history.
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