It is worth considering whether the Coronavirus will have longer-term repercussions, says Economist Neil Shearing. One plausible consequence is that it could accelerate the process of deglobalization that is already spreading through the world economy.
The spread of the Coronavirus has created a cottage industry for economic forecasters, explains Neil Shearing (pictured below). He is the Chief Group Economist at London-based research company Capital Economics. The more important question, however, is how quickly any lost output can be made up, he adds.
«If workplaces reopen soon, we think activity should rebound relatively quickly with lost output recovered over the rest of this year,» says Shearing. But a prolonged shutdown could mean the lost output is never recovered. It would also increase the likelihood that the virus triggers a «black swan» type event either in China (keep one eye on the property market) or further afield (keep one eye on the energy sector).
Process of Deglobalization
«However, it’s also worth casting the eye beyond the next year or so and considering whether the virus will have longer-term repercussions,» Shearing underscores. One plausible consequence is that it could accelerate the process of deglobalization that is already spreading through the world economy.
One catalyst for this could be a political shift in China itself. Some commentators have speculated that, since the virus has undermined the popular belief that concentrating power in the Party is the best way forward for China, the Party may start to liberalize and relinquish control, says Shearing.
Popular Feeling
This could, in time, push China and the West closer together. But it’s equally possible that, once the virus is brought under control, popular feeling may start to shift again.
Beijing may be able to make the case that the outbreak was only contained thanks to a strong center. And if that happens, it could entrench China’s existing economic model and make further clashes with the U.S. more likely in the future.
A Threat to Supply Chains
In truth, people are often too quick to jump on the idea of impending political change in China. A more immediate way in which the crisis could accelerate a process of de-globalization is by adding to a growing pushback against large and complex supply chains.
Up to now, the threat to supply chains has been viewed mainly through the prism of policy and technology. The U.S.-China trade war, alongside Brexit, undermined the previous belief that free trade was an immutable pillar of the world economy.
More 3D Printing
At the same time, new technologies such as 3D printing have enabled the re-shoring of some aspects of manufacturing production that was previously offshored to emerging economies. Both factors seem likely to cause an increasing number of firms to question the benefits of maintaining large supply chains.
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