With the world’s population continuing to increase at a rate of knots, and hygiene and disease prevention at consistently low levels in the third and developing worlds, I think these kind of outbreaks will only increase in frequency.
Assuming that the current Wuhan and other upcoming outbreaks don’t wipe us out, one of the questions raised by these incidents is the impact they can have on the global economy. The rate at which the infections can spread is staggering, with cases already being reported in a number of countries where infected Chinese nationals who were in the vicinity of Wuhan at the time of the outbreak have travelled. The true extent of the outbreak is something we cannot be sure of, nor how far and wide it may spread before it is eventually contained.
What should our response be as investors when outbreaks like this occur? The impact has the potential to be far more profound and long lasting than other market moving black swan events such at the September 11 terrorist attacks and the 2008 GFC. If China’s economy is crippled by an outbreak that cannot be easily contained, the consequences could be devastating globally.
Personally, I don’t trust the Chinese government to be upfront and honest about what is really happening inside its borders. Their priority is going to be to quell panic and maintain order. Truth may well fall by the wayside as a result.
When I think long and hard about the possible consequences, it can get pretty scary. Is it unreasonable to think that imports out of and exports into China could be suspended if it is unable to be contained quickly enough? Tourism, retail sales, travel and industrial production could be hit very hard as confidence plummets.
400 million people in China are expected to travel across the country this weekend to celebrate the lunar new year. The timing of this current outbreak is especially bad.
The 2003 SARS outbreak in China cost the world economy $40 billion. A total of 8,098 were infected and 774 killed in 37 different countries. Wuhan has a population of 11 million. What if 250,000 people are infected? 500,000? A million?
With Australia’s economy on shaky ground already, what will a difficult to contain SARS virus outbreak have on our economy? If China sneezes, we get a cold. Well, China is sneezing at the moment, literally. The question is, how big is that economic sneeze going to be?