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The coronavirus has been a body blow to the Chinese economy, which now threatens to take out the entire global economy. A global recession is likely if COVID-19 becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea. The US economy is more insulated from the impact of the virus, but it is not immune, and it too would likely suffer a downturn in this scenario.
A global battering
COVID-19 is battering the global economy in numerous ways. Chinese business travel and tourism has all but stopped; global airlines are not going to China and cruise lines are canceling most Asia-Pacific itineraries. This is a huge problem for major travel destinations, including in the United States, where some three million Chinese tourists visit each year. Chinese tourists to the USA are among the biggest spenders of any foreign tourists. Travel in Europe is also sure to be severely impacted as Milan, Italy, the center of the new infections in that country, is a major travel hub for the Continent.
Shuttered Chinese factories are also a problem for countries and companies fastened into China’s manufacturing supply chain. Apple, Nike and General Motors are some prominent American examples. Shortages of some goods will likely result this spring, meaning higher prices for things we buy at Walmart and on Amazon.
US exports to China will suffer given slumping Chinese demand. China is supposed to ramp up its imports of US products as part of the Phase One trade deal signed by the two countries late last year. How much the Chinese would actually purchase from the United States was already an open question. Given COVID-19, it is even more questionable. President Trump has suggested that the federal government will cut another check to hard-pressed US farmers to make up for the losses.
Commodity slump
Because China is the biggest buyer of many of the world’s commodities, including oil, copper, soybeans and pork, and will be buying a lot less of these and many other things, prices are slumping. Americans will pay less at the gas pump, which is a plus, but it will be hard on the energy, mining and agricultural industries. Emerging economies, especially in Latin America and Africa, that rely on commodity production for their livelihoods will be slammed.
Global businesses can’t seem to catch a break. They have been grappling with the trade war, the Brexit transition, and the economic policy implications of the fast-approaching US presidential election. COVID-19 is now another on this lengthening list of concerns, making it even more likely that already-cautious business executives will continue to sit on new investment and expansion plans. Moreover, they will likely be slow to ramp up their operations, fearful of the implications if they move too quickly and their workers get sick.
Perhaps most significant, stock and bond investors have finally taken note of what the virus means for the global economy. It was one thing when the virus was exclusively a Chinese problem; it is something else altogether if the virus is spreading through the rest of Asia and Europe, with rising odds the entire globe will be infected. The implications will soon come into even stronger relief as multinational corporations begin reporting what the virus has done to their sales and profits. With stock prices trading at record highs just last week, investors aren’t ready for bad news from the companies they are invested in.
The outlook
So, what does this mean for this year’s economic outlook and the risks to that outlook?
Under our baseline (most likely) scenario, which assumes the outbreak remains contained to China and largely plays out by the spring:
China’s economy will contract in the first quarter of this year, and growth for the year will be cut by a full percentage point to 5.4%.
The global economy will suffer a hit to GDP of almost a percentage point (annualized) in the first quarter, and slow by 0.4 percentage point to 2.4% in 2020. For context, global potential growth is an estimated 2.8%.
The US economy will experience growth of only 1.3% in the first quarter (annualized), down by 0.6 percentage point because of the virus. Growth in 2020 is now expected to be 1.7%, down 0.2 percentage point. The US economy’s potential growth is an estimated near 2%.
However, the assumption that the virus will be contained to China appears increasingly tenuous, and the odds of a pandemic are rising. We previously put the odds of a pandemic at 20% (see Alternative Scenario), but we now put them at 40%. A pandemic will result in global and US recessions during the first half of this year. The economy was already fragile before the outbreak and vulnerable to anything that did not stick to script. COVID-19 is way off script.
COVID-19 came out of nowhere. It may be what economists call a black swan — a rare and inherently unforeseeable event with severe consequences. We all hope the global effort to contain the virus will ensure this black swan will not fly. But it is prudent to be prepared if it does.
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On the day this is written, an editor who has been not only preoccupied with US politics but also under the weather for the better part of a week sees a screen through itchy, watery eyes and is uncomfortably grungy. No water coming to the house through the rural aqueduct for about three weeks now. It’s a familiar drill in which things like laundry, dishwashing, floor mopping, toilet flushes and personal bathing are rationed to get by on much less. It’s also a health risk, more to others whenever it’s necessary to go out and get supplies.
Is it the coronavirus? Probably not. Even if it is, there is a small chance of getting seriously sick, and if that happens, perhaps a one in ten chance of not surviving it. The news came through of Brazil’s first documented case on this day, but there is an incubation period that includes an asymptomatic phase in which the infected person is contagious. Brazil will see a geometric increase in cases. Probably Panama, The Crossroads of The World, has unreported cases and some of those will blossom.
Are people, and is the government, taking all due precautions? Well, yes and no.
The measures to prevent infected people from abroad coming in to infect us are sensible enough, yet not enough and at the same time harmful to our transportation and commerce hub economy.
Should we have called off the Carnival celebrations, and the Lent pilgrimage to Atalaya, to avoid large crowds that might be infected? Perhaps, but because of precautions not taken long before a crisis, much of the metro area, many rural places and Atalaya have been without water. Unwashed people, and thirsty people, tend to be more vulnerable to getting infected and infecting others.
Do not panic. This, too, shall pass. But along the way we need a national discussion about water policy, and that also should be part of a constitutional debate. We have this bastion of political patronage and nepotism, the IDAAN water and sewer authority, not showing much competence at its higher levels but grabbing for control of the rural aqueducts from time to time. We have a collection of bankers, construction company execs and corporate lawyers on the Panama Canal authority grabbing for control of the national water supply and demonstrating a preference for generating ship tolls over protecting the public health.
To aggravate matters, IDAAN decided to shut down water supplies to all but the very rich in Panama City over the holidays, creating health issues for those who decided to stay put and avoid the big crowds. But the diminished count of cars headed to the Interior, a lot more people than usual decided to stay in the city, and if they had prepared for the announced water shortages, those turned out to be much worse than they had been told. We’ve had uncomfortable days and we shall see the extent that these were dangerous days. But don’t blame the hacks at IDAAN — they’re blaming a private consortium they contracted:
Privatization? Outsourcing? A charismatic adminstrator? A bureaucratic reshuffle? Taking the water we need from someone else who is unable to defend it? We have seen all of that over many years.
The problem is that water and snake oil don’t mix.
Sexual gratification as one of the perquisites of wealth or power? It has often been the norm, surely since before the onset of recorded history. There are cultures and legal systems built around the presumption.
From a female perspective survival and propagation, the ability to feed and raise children, has often depended on picking a mate who can afford to do this. Hence the fury unleashed at various points in history at humble women who chose relationships with foreign conquerors whose days in power proved ephemeral. Hence the clear if incomplete DNA record of what really happened when Panama’s first nations were conquered..
Times do change, and cultures with them. Sometimes a change is just a slight correction, less often a profound transformation.
Was the conviction on sexual assault charges of Harvey Weinstein, with more trial pending, the daw of a new era for Hollywood culture? Or was it just notice that peviously existing limits that had been applied to more ordinary men may now be applied to the crudeness of US cultural moguls?
And what about rape culture here? A firestorm of criticism of the use of the La Cascara television program to suggest the rape of a semi-conscious drunk woman was followed by a quick and inadequate apology. Some of Panama’s labor leaders put it in a larger context, wherein rabiblanco television constantly celebrates rather than satirizes abuse agains those with the least power in our society.
Unacceptable, you guys. Harvey will have some lonely and difficult years to ponder social change if he cares to do so. Ubaldo may find time to reflect, as a former television personality, about the evolution of what viewers and advertisers will accept.
There are years that ask questions and years that answer.
Zora Neale Hurston
The most radical revolutionary will become a conservative the day after the revolution.
Hannah Arendt
When the character of a man is not clear to you, look at his friends.
Japanese Proverb
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The news is filled with stories about President Trump and his predecessors imposing sanctions on other countries, their officials, and other prominent persons. But the media rarely spells out exactly what these sanctions are, the intermediaries who enforce them, the impacts they have on innocent civilians – women, men and children – how they are countered or evaded, and whether they fulfill or undermine their diplomatic, military, or economic purposes.
For example, sanctions against Iran by Trump increase by the year. They force banks and other financial institutions to cut off all decreed transactions, such as exports from Iran or purchase by Iran of critical spare parts, raw materials, even medical devices. Years ago, sanctions against Iraq under Saddam Hussein prohibited Iraq from purchasing chlorine to purify drinking water and children’s catheters. These sanctions produced deadly results for innocents. Iran’s economy is now in ruins and the brunt of the pain is suffered by innocent families. Under international law, disproportionate harm on civilians from sanctions is a serious violation.
Presently, from Trump there are sanctions on individuals in numerous countries, restricting their travel, their purchases and more. When banks like Citigroup and Bank of America are told by Washington to cut off any financial transactions from any companies doing business with a sanctioned country, do the banks receive payment for their trouble, or are there other quid pro quo rewards? We do not know. Secret government actions are pervasive, though sometimes a freedom of information request, followed by litigation, may pry open what is hidden.
Media alert! Sanctions are potential hotbeds for corruption and illegalities.
A little told story relates the tariffs Trump is imposing on imports from other countries, especially China. There are serious questions as to whether presidents have the constitutional authority or whether Congress must maintain authority on tariffs. Veteran constitutional law litigator Alan Morrison is now contesting sweeping executive tariff power in the federal courts. Reporting on this overreaching by the President is scarce.
Digging deeper, reporters should be asking what standards control presidential discretion or whims on imposing tariffs. The “national security flag” can’t just be waved arbitrarily.
Trump passes out many waivers for certain US companies. Why, for example, did Trump give Apple CEO Tim Cook a waiver on tens of billions of dollars in iPhones imported from China, but not provide waivers to any number of smaller US companies who buy products from China for their manufacturing or retail/wholesale sales?
Constitutional law specialist, Bruce Fein, says the absence of standards for giving waivers raises fundamental questions of unlawful delegation by Congress.
Media alert! Potential incentives for corruption and lawlessness in these burgeoning behind the scenes intrigues are huge.
The third hotbed of abuses relates to the charges by Washington that countries abroad tolerate “corruption,” and that security and economic relations with them are either jeopardized or unworkable. Such charges are regularly made against the governments of Afghanistan and Iraq – both militarily occupied by the United States.
Corruption involves more than high-level officials taking bribes. Low-level public servants, so woefully underpaid, take money under the table to survive. As it happens, Ashraf Ghani, the elected president of Afghanistan, a former professor at Johns Hopkins University, was a leading expert on the nuances and functions of bribery in third-world countries. He can be a worthy source of knowledge on corruption.
US agencies are a major generator of secret corruption in countries like Afghanistan. For example, cargo planes full of crisp one hundred dollar bills are shipped to Kabul and then trans-shipped to places like Kandahar. It doesn’t take much imagination to frame a reporter’s investigation—of what happens to cash in occupied, desperate societies.
Books and articles on the intelligence agencies note that cash handouts, big and small, are critical to achieve their purposes. There is so much bribery cash in Afghanistan that to stop the flow would seriously affect their shaky economy.
Bribery is a two way street – the briber and the bribee. Secret payments and bribes have often backfired against US foreign policies in many undesirable ways.
Bribes to get what Washington and giant multinational corporations want from fragile countries merits more reporting, if only to show that a good deal of the bribery is under our control and within our power to reverse.
Media Alert!
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Lyndon Johnson had a saying about special interests trying to get his support to pass some blatantly self-serving legislation: “They can’t make chicken salad out of chicken (bleep)!”
Yet chicken (bleep) is all that the corporate health complex has to work with as it frantically tries to defend its current system of mass malpractice. After all, as most Americans have learned the hard way, profiteering insurance giants, Big Pharma, and hospital chains grossly overcharge us while constantly trying to shortchange — or outright deny — care to millions of our families.
So, unable to win public support on their own merit, the corporatists and their hired political hacks are going all out to continue their gouging and keep control of America’s dysfunctional system. They’re now running a multimillion-dollar PR and lobbying campaign of lies to trash and kill all reforms that would deliver quality, comprehensive care to everyone, at far less cost than they can deliver.
Masquerading as a “Partnership for America’s Health Care Future,” the profiteers warn ominously that such reforms as Medicare for All or a public option for health insurance would take away people’s “choice” and our “control” over health care.
Hello: we presently have no choice or control.
Our “care” is managed by a handful of insurance, drug, and hospital monopolists whose primary objective is not improving our health, but feathering their own cushy nests. And the undeniable, ugly truth is that they can only continue ripping us off by killing real reform.
That’s one reason the American Medical Association and others are dropping out of the Partnership’s political front. Honest health care practitioners no longer believe it’s in their best interest — or the public’s — to be part of its chicken (bleep) PR campaign.
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