LONDON — Epidemics normally have a severe but relatively short-lived impact on economic activity, with the impact on manufacturing and consumption measured in weeks or at worst a few months.
Even pandemics such as the Black Death (1348/49), Spanish influenza (1918/19), Asian influenza (1957/58) and Hong Kong influenza (1968/69) that caused large numbers of deaths had a brief impact on the economy.
China’s coronavirus outbreak should conform to this pattern of a severe downturn followed by swift recovery, provided it does not initiate a broader cyclical slowdown in the already-fragile global economy.
Oil traders are anticipating a deep but short-lived drop in consumption, with the impact concentrated in the first three months of the year and gradually fading in the second and third quarters.
Before modern medicine, the Black Death is estimated have killed between a third and a half of the population of England, and as many as 60 million people worldwide, making it the most lethal single epidemic in history.
The Black Death has become the archetype lethal pandemic, spreading from country to country, and community to community, rapidly killing millions, including many otherwise healthy young adults.
Plague returned periodically to England for the next 150 years, with severe outbreaks in 1361 (“pestis secunda”) and 1368 (“pestis tertia”), and smaller national or local outbreaks in most decades until the early 1500s.
England’s population plunged from around 4.5-6.0 million in 1348 to as little as 2.0-2.5 million a century later and did not fully recover for three or four centuries, according to estimates by historians and demographers.
Following the plagues, England’s economy entered a long agricultural and commercial depression towards the end of the 1300s that lasted through the 1400s, which some scholars blame on depopulation.
In the immediate aftermath of the Black Death, however, the economy seems to have bounced back remarkably quickly given the catastrophic death toll, according to the historian John Hatcher.
“The immense loss of life in the plagues inevitably caused disruption and setbacks in production, but in the greater part these appear to have been short-lived” (“Plague, population and the English economy,” Hatcher, 1977).
“One of the most striking features of the thirty and more years following 1348 was the resilience that the agrarian economy displayed in the face of recurrent plague,” Hatcher observed.
For the most part, agricultural rents and revenues as well as consumption of major commodities rapidly returned to pre-plague levels, and only began to decline from the 1380s or 1390s.
In more recent times, the outbreak of influenza in 1918/19 is estimated to have killed 675,000 people in the United States and 50 million worldwide, making it the second most deadly epidemic after the Black Death.
The influenza epidemic came in three distinct waves, in the summer and autumn of 1918 and again in early 1919 (“Report on the pandemic influenza 1918-19,” UK Ministry of Health, 1920).
But economic impact in the United States, Britain and many other countries, was very short term and dwarfed by the transition from wartime production to a civilian economy as World War One ended.
In the United States, business conditions were chronicled in the monthly bulletins of the Federal Reserve System, which included a survey regional economic conditions in each of the 12 Federal Reserve districts.
The bulletin made no references at all to influenza for the first 10 months of 1918, then references surge to 17 in November and 23 in December, before falling to just 2 in January and largely disappearing thereafter.
Most of the influenza references in the November and December bulletins are to evidence from business surveys conducted by each of the 12 Federal Reserve Banks in October and November (https://tmsnrt.rs/2SIo6Sm).
In November, the Federal Reserve Bank of Boston warned: “The epidemic of influenza which has prevailed during the past month has seriously interfered with business. Production of all kinds has been restricted.”
“Retailers in large centers have had a material falling off in business, while those serving small local trade have to a considerable extent reaped benefits. Conditions are, however, rapidly returning to normal.”
In the Philadelphia District, “retail trade shows a large increase during the month up to the beginning of the influenza epidemic. Since that time, however, the number of customers daily visiting the stores has decreased about one-third and the volume of sales from 30 to 50 percent.”
“Working forces of all business establishments, too, have been affected very much at times, as many as one-third of the employees having been unfit for duty.”
Coal production was hit especially hard, with some collieries being forced to close because so many miners were sick (https://tmsnrt.rs/2HHGrsu).
In the St Louis District, “the influenza epidemic, and the measures taken to combat it, have had a disturbing effect on certain branches of business … Theaters, schools, churches, and other meeting places have been closed entirely, and some of the large stores have been compelled to open later and close earlier than usual.”
“This has especially handicapped retail trade, though other lines have also been affected. Some activities have suffered considerably on account of the depletion of their working forces through contraction of the disease.”
Just a month later, however, most Federal Reserve Banks were already reporting business conditions were returning to normal in the December bulletin.
In the St Louis District, “the influenza epidemic is on the decline … and the bans placed on business to combat it, in most instances, have been lifted. Department stores, theaters, etc, are now operating as usual, and schools, churches, lodges, etc, are again open. This has materially helped the retail trade.”
In the Richmond District, “the subsidence of the prevalent influenza permitted the reopening of churches, schools, and other places of gathering.”
“Manufacturing continues active with the prevailing restriction of supplies and labor. The effects of the influenza are passing and mills are resuming more normal operations.”
The precise economic impact of the epidemic of 1918/19 is hard to isolate because it coincided with the end of wartime production and the transition to a post-war civilian economy.
But there are no signs of lasting disruption: a pandemic that killed 50 million people worldwide has left almost no trace in the economic record.
Further influenza pandemics were reported in 1957/58 and 1968/69 but in both cases the number of extra deaths was low and there was no discernible economic impact.
More recently, the outbreak of severe acute respiratory syndrome (SARS) in 2003, caused only a brief interruption in economic activity and oil consumption.
In most cases, the main impact on the economy has come from public health measures, such as quarantines, isolation and business closures, intended to control the spread of disease, rather than from the disease itself.
As a result, policymakers face a difficult trade-off between stringent public health measures to contain the epidemic and the need to resume normal business and social activities as soon as possible.
Over time, policymakers, business owners and employees face increasing pressure to resume near-normal operations, while taking practical steps to reduce if not eliminate transmission risk.
China’s government is trying to encourage a gradual normalization of business activity and transport in the rest of the country outside Hubei, the province at the center of the outbreak.
If the past is any guide, economic activity and oil consumption should return to normal over the next 3-6 months, which is why Brent prices and calendar spreads have been progressively strengthening over the last 10 days.
The main remaining risk is that the short-term economic shock from coronavirus could push the global economy, which was only just recovering from the trade war of 2018/19, into a full-blown cyclical downturn.
– Oil prices bounce on hope for short coronavirus downturn (Reuters, Feb. 17)
– Falling air freight points to renewed global economic slowdown (Reuters, Feb. 13)
– Coronavirus and the impact on oil consumption (Reuters, Feb. 5) (Editing by David Evans)
Chipmakers Are Flashing More Warnings on the Global Economy – BNN Bloomberg
(Bloomberg) — Mounting concern over semiconductor demand is sending shudders through North Asia’s high-tech exporters, which historically serve as a bellwether for the international economy.
South Korean behemoths Samsung Electronics Co. and SK Hynix Inc. have signaled plans to dial back investment outlays, while across the East China Sea, the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing Co. indicated a similar expectation.
Fading tech demand highlights a darkening picture as Russia’s war on Ukraine and rising interest rates damp activity. The following charts look at the chip industry and its implications for the world economy.
In recent weeks, major chip manufacturers Micron Technology Inc. Nvidia Corp., Intel Corp. and Advanced Micro Devices Inc. have warned of weaker export orders.
Gartner Inc. predicts an abrupt end to one of the industry’s biggest boom cycles. The research firm slashed its outlook for revenue growth to just 7.4% in 2022, down from 14% seen three months earlier. Gartner then sees it falling 2.5% in 2023.
Memory chips are among the most vulnerable segments in the $500 billion semiconductor market to global economic performance, and Samsung and SK Hyinx’ sales of dynamic random access memory, or DRAM, a chip that holds bits of data, are central to Korean trade.
Next year, demand for DRAM is likely to rise 8.3%, the weakest bit growth on record, says tech researcher TrendForce Corp., which sees supply climbing 14.1%. Bit growth refers to the amount of memory produced and serves as a key barometer for global market demand.
South Korea’s exports are bolstered when demand outpaces supply in bit growth. But with supply likely to expand at almost twice the pace of demand next year, exports may be headed for a major downturn.
Signs are rising that trade is already starting to deteriorate. Korea’s technology exports slipped in July for the first time in more than two years, with memory chips leading the falls. Semiconductor inventories piled up in June at the fastest pace in more than six years.
Among potential victims will be Samsung, the world’s biggest memory-chip producer and a linchpin of Korea’s trade-reliant economy.
Samsung recorded rapid sales growth when demand was strong relative to supply. As the chip outlook turns gloomy, shares of Samsung have been declining this year, with occasional rebounds on better-than-expected profits.
Samsung and SK Hynix control roughly two thirds of the global memory market, meaning they have the power to narrow the gap between supply and demand.
Memory is loosely tied to other types of semiconductors, built by firms such as TSMC that produces chips in iPhones, and Nvidia, whose graphics cards are used in everything from games to crypto mining and artificial intelligence.
The Philadelphia Semiconductor Index, which includes these firms, has ebbed and flowed together with memory demand in recent years.
Korean exports have long correlated with global trade, meaning their decline will add to signs of trouble for a world economy facing headwinds from geopolitical risks to higher borrowing costs.
Micron Technology, the world’s third-largest memory maker, last week issued a warning about deteriorating demand, triggering a selloff in global chip stocks.
Korea’s stock market has been among leading indicators of the country’s trade performance, with investors dumping shares well before exports slump.
“The trend is important for Asia as its economic cycle is very dependent on tech exports,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. “Fewer new orders and the large inventory pile-up mean Asia’s tech sector will see a long destocking cycle and a shrinking profit margin.”
The International Monetary Fund last month downgraded its global growth forecast and said 2023 may be tougher than this year.
Deutsche Bank AG sees a U.S. recession starting in mid-2023 and Wells Fargo & Co. expects one in early 2023. A Bloomberg Economics model sees a 100% probability of a US recession within the next 24 months.
©2022 Bloomberg L.P.
Russia ministry says economic slump less severe than feared – Al Jazeera English
Economy ministry says gross domestic product to shrink 4.2 percent this year amid sanctions over the war in Ukraine.
Russia’s economy will contract less than expected and inflation will not be as high as projected three months ago, economy ministry forecasts showed, suggesting the economy is dealing with sanctions better than initially feared.
The economy is plunging into recession after Moscow sent its armed forces into Ukraine on February 24, triggering sweeping Western curbs on its energy and financial sectors, including a freeze of Russian reserves held abroad, and prompting scores of Western companies to leave.
Yet nearly six months since Russia started what it calls a “special military operation”, the downturn is proving to be less severe than the economy ministry predicted in mid-May.
The Russian gross domestic product (GDP) will shrink 4.2 percent this year, and real disposable incomes will fall 2.8 percent compared with 7.8 percent and 6.8 percent declines, respectively, seen three months ago.
At one point, the ministry warned the economy was on track to shrink by more than 12 percent, in what would be the most significant drop in economic output since the fall of the Soviet Union and a resulting crisis in the mid-1990s.
The ministry now sees 2022 year-end inflation at 13.4 percent and unemployment of 4.8 percent compared with earlier forecasts of 17.5 percent and 6.7 percent, respectively.
GDP forecasts for 2023 are more pessimistic, though, with a 2.7 percent contraction compared with the previous estimate of 0.7 percent. This is in line with the central bank’s view that the economic downturn will continue for longer than previously thought.
The economy ministry left out forecasts for prices for oil, Russia’s key export, in the August data set and offered no reasons for the revision of its forecasts.
The forecasts are due to be reviewed by the government’s budget committee and then by the government itself.
China’s premier urges pro-growth policies as economy sputters – Al Jazeera English
Li Keqiang calls on provinces to bolster growth after consumption and output fall short of expectations.
China’s Premier Li Keqiang asked local officials from six key provinces that account for about 40% of the country’s economy to bolster pro-growth measures after data for July showed consumption and output grew slower than expectations due to Covid lockdowns and the ongoing property slump.
Li told officials at a meeting to take the lead in helping boost consumption and offer more fiscal support via government bond issuance for investments, state television CCTV reported Tuesday evening. He also vowed to “reasonably” step up policy support to stabilize employment, prices and ensure economic growth.
“Only when the main entities of the market are stable can the economy and employment be stable,” Li was cited as saying at the meeting in a front-page report carried in the People’s Daily, the flagship newspaper of the Communist Party.
The meeting came after Monday’s surprise interest-rate cut did little to allay concern over the property and Covid Zero-led slowdown. Economists have warned of even weaker growth and have called for additional stimulus, such as further cuts in policy rates and bank reserve ratios and more fiscal spending.
Li acknowledged the greater-than-expected downward pressure from Covid lockdowns in the second quarter and asked the local officials to strike a balance between Covid control measures and the need to lift the economy. “Only by development shall we solve all problems,” Li said, according to the broadcaster.
Indicating China may resort to more local debt issuance to pump-prime the economy, Li said “the balance of local special bonds has not reached the debt limit” and the country should “activate the debt limit space according to law,” according to the People’s Daily report.
Based on the government budget, local authorities may be able to issue an estimated 1.5 trillion yuan ($221 billion) of extra debt and bonds this year to support infrastructure spending, after top leaders urged better use of the existing debt ceiling limit in a key July Politburo meeting. The arrangement could be approved in August, according to some analysts.
China’s 10-year government yield rose for the first time this week, up one basis point to 2.64% from the lowest in more than two years.
Li urged local governments to accelerate the construction of projects with sound fundamentals in the third quarter to drive investment, the report said, and also asked officials to expand domestic consumption of big-ticket items such as automobiles and support housing demand.
He also stressed the importance of opening up the domestic market to foreign investors, noting that the six major provinces — Guangdong, Jiangsu, Zhejiang, Henan, Sichuan and Shandong — account for nearly 60% of the country’s total foreign trade and foreign investment.
“Opening up is the only way to make full use of the two markets and resources and improve international competitiveness,” Li was cited as saying.
Li’s appearance suggests state leaders have completed their annual two-week policy retreat in resort area of Beidaihe.
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