Pandemic or not, coronavirus could wreak havoc on the global economy

According to the director-general of the World Health Organisation, the outbreak of the coronavirus, or Covid-19 as the authorities prefer to call it, has reached a “decisive point”, and now has “pandemic potential”. Yet while the death toll is still rising, reports from China suggest that the rate of increase in fatalities there may have peaked. It is still not yet a pandemic, and may never become one. The coronavirus may have spread to every inhabited continent, but it still must be put in perspective.

The old adage about hoping for the best but preparing for the worst comes to mind. In particular, global governments need to prevent virus panic triggering a global economic slowdown. It should certainly be high on the agenda of Monday’s Cobra meeting that will, at last, be chaired by the prime minister.

No one can know how far or fast the coronavirus will spread. As the former health secretary Jeremy Hunt observes, if the virus spreads to densely populated places with less effective health systems and less regulated movement of peoples, its deadly potential will grow dramatically; cases in Mexico and Nigeria are thus a cause for concern. It is worth noting in passing that Mr Hunt, with his urbane ways and easy bedside manner, is doing a rather better job of informing and reassuring the public than his successor, Matt Hancock, who appears to be self-isolating.

While the clinical consequences are formidable, authorities must turn their attention to the economic damage the virus is wreaking before it sparks a worldwide recession. It is quite possible that the Covid-19 pandemic will never materialise; its economic contagion already has.

The industrial consequences are already being felt. Given that China is responsible for 28 per cent of the world’s manufacturing output, and is a major supplier of componentry for factories across the globe, it is unsurprising that supply chains are already interrupting production. That, in turn, is restraining demand for goods and services, in a predictable downward spiral.

In a globalised economy, such shocks can transmit rapidly. The impact on airlines, tourism and other sectors is already apparent. Major financial markets have recorded double-digit drops in a few days, some of the worst since 2008. Investors, with an instinctive fear of uncertainty, have erred on the side of caution, wiping trillions of dollars from the world’s wealth.

The worst may be yet to come. The Uefa Euro 2020 football tournament, to be played across stadiums from Scotland to Azerbaijan, is at risk; as are the Tokyo Olympics. Saudi Arabia has already halted travel to Medina and Mecca, months ahead of the annual Hajj pilgrimage, while the Swiss government has scrapped the Geneva International Motor Show.

Who will pay for the inevitable financial losses? If firms are adequately insured, then will the shock of the losses reverberate through the financial system – just as the banking losses of 2008 onwards pushed insurance giants and investment banks into bankruptcy or nationalisation? If the losses end up with Lloyd’s of London, will it be able to withstand such extraordinary demands? Are the IMF and World Bank ready to undertake further coordinated monetary stimuli? Are the treasuries of the G20 nations prepared to spend whatever it takes to keep the banks and insurers running as they grapple with the fallout from a coronavirus pandemic – or, more immediately, from coronavirus panic?

Covid-19 may end up being as much a question of money as of medicine – and we should prepare for the worst.