Coronavirus and the World Economy
Last week the WHO declared the spread coronavirus as a pandemic and this morning China reported no new cases. What we can learn from the China example is that if one is prepared to take drastic measures one can get the spread and the new infection rate under control within two month. On the 14th of March Namibia officially reported two cases and suspended inbound and outbound travel to countries outside SADC for a period of 30 days. Schools closed on Monday the 16th of March and foreign tourism came to a standstill. These measures announced by the President were timeously and correct. The latest cases and deaths are the following:
Table 1: Coronavirus cases – 27 January – 19 March
|Region/Country||Cases27 Jan||Cases27 Feb||Cases12 Mar||Cases19 Mar|
|China||4 581||78 499||80 796||80 928|
|Europe||–||556||29 020||93 292|
|Rest of the World||–||2 569||23 495||48 862|
|Total||4 581||82 183||133 311||223 082|
It took China two month to stabilize the situation within China and one can only hope that not a new wave will start once the situation normalizes. Lessons from China indicate that the peak in the rest of the World will be reached in about a month time with an estimated total number of cases (if countries take drastic action) of about 1-2 million.
Table 2: Coronavirus deaths – 27 January – 19 March
|Region/Country||Deaths27 Jan||Deaths27 Feb||Deaths12 Mar||Deaths19 Mar||Death ratio as% of cases|
|China||106||2 747||3 169||3 245||4.0%|
|Europe||–||14||1 143||4 201||4.5%|
|Rest of the World||–||43||586||1 703||3.5%|
|Total||106||2 804||4 898||9 149||4.1%|
More death cases were reported in the last 7 days in Europe and they surpassed China. China has currently gained control against the further spread of the virus and one can assume that normality will come from a virus perspective. The real economic costs are spiralling and a World recession has become a reality, much worse than 2009. The latest estimate but Goldman Sachs sees a contraction of 9% in Q1 of China’s GDP and it will be much worse by other estimates.
The World economy will move into a severe recession as the MSCI World Index (below) is signalling.
Source: MSCI Index
The MSCI index was at 2401 on 22 February 2020 and closed yesterday at 1676, a fall of 30.2%. Each country in the developed World is announcing stimulus packages because everybody knows that a recession in unavoidable. Stock markets are not convinced yet that the various packages can halt the economic meltdown and Wall Street opened 3% lower this morning. Car manufactures in Europe and the US closed their plants and Lufthansa requested state aid today. More companies will follow and in these daunting times it is important that society, business and politicians work together to soften the economic fallout.
From selected commodity prices one can gauge the possible impact on the Namibian economy. Brent oil is currently trading at $ 25.80 per barrel and oil prices declined by -57% in the last month. For the motorists in Namibia this is good news, but for our neighbouring county Angola not.
The commodity prices of Namibia’s main export are declining dramatically with the World recession and the economic growth forecasts for Namibia will have to revised downwards. It is estimated that the Q2 GDP will be in the range of a negative 5-9%, depending on a local stimulus package which has not been announced yet.
Table 3: Selected international commodity prices
|Energy: Brent oil||-56.75%||-62.55%|
Source: Trading economics. 19 March 2020
The N$ is currently trading 17.5 to the US Dollar and therefore the fall in the commodity prices can probably partly be absorbed by the weakening Namibian Dollar.
Compiled by: Rainer Ritter
19 March 2020