Could Coronavirus Kickstart a Recession? Professor Alan Gin Discusses with San Diego Union Tribune

San Diego Union Tribune LogoUSD School of Business Associate Professor of Economics Alan Gin
begin quoteIt all depends on how long it takes China to contain the virus.

The San Diego Union-Tribune interviewed Associate Professor of Economics Alan Gin among a panel of experts to discuss the global economic impact that the coronavirus outbreak could cause. 

Econometer: Could Coronavirus Kickstart a Recession?

Our panel of experts considers if the coronavirus outbreak could start a recession.

The stock market was hit hard last week as the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite suffered their worst January since 2016.

Much of the fall was attributed to the coronavirus in China, especially as airlines suspend flights to the nation. One consequence of market changes was the yield on the benchmark 10-year U.S. Treasury note edging back below the yield of the three-month bill this week. The phenomenon, known as a yield-curve inversion, is often interpreted as a warning sign about a recession ahead.

This has led to several articles and analysts questioning if the coronavirus could have a bigger impact on the global economy than many first predicted.

Q: Could the coronavirus actually start a recession?

Chris Van Gorder, Scripps Health

NO: China has moved aggressively to contain the epidemic, and the United States and its other major trade partners have been vigilant in their efforts to detect and quarantine those infected by the virus. I am fully confident in our ability to provide the highest quality care in this country. Based on all the available information to date, the impact on the U.S. economy is unlikely to be significant or long term.

Jamie Moraga, IntelliSolutions

NO: Markets are reacting in the short term to the threat of the coronavirus but in the long term it shouldn’t make a lasting impact. In the past, returns usually turned positive again after three months and continued to improve. Historically, health emergencies like SARS and the swine flu were often eclipsed by economic events like the tech-bubble and the Great Recession. Investors will continue to track the coronavirus, but it shouldn’t start a recession based on historical data.

Lynn Reaser, Point Loma Nazarene University

YES: Should the coronavirus spread widely in the U.S., limits on travel, work, and shopping could pummel the economy as we have seen in Wuhan. Aggressive efforts to detect and contain the virus, however, are likely to prevent a recession. American business supply chains will be disrupted, with some companies shifting production. Some spending and output will be lost forever, but other activity will bounce back. Chinese monetary and fiscal stimulus will also be used to mitigate the damage.

Phil Blair, Manpower

YES: Coronavirus is quickly becoming a natural disaster. With all the airlines canceling flights to China; countries strictly controlling their citizens that enter leave China; workers staying home and the spreading of the virus to other countries; and with no cure in site the global economy could be in serious trouble. This shows how dependent the entire world has become to open and free trade. When one major customer shuts down, in this case China, it has huge rippling effect on the world economy.

Alan Gin, University of San Diego

YES: It all depends on how long it takes China to contain the virus. China is a much bigger part of the world economy than in 2003, when the SARS outbreak occurred. It is much more integrated into global supply chains than it was back then, so any prolonged disruption could have negative consequences for companies all over the world. In addition, a slowing of the already weak Chinese economy would mean fewer sales to that country, which would also hurt the global economy.

Kelly Cunningham, San Diego Institute for Economic Research

NO: Financial impact will probably follow similar pattern as the 2003 SARS outbreak. It will likely not lower GDP by $25.5 billion or just 0.1 percent, if at all. Assuming the virus is largely contained (many people die from the flu each year) and countries take reasonable precautions, effects are not likely to last long other than of course those directly contracting the virus. Some countries may overreact, which may be good since the alternative could be worse.

Gary London, London Moeder Advisors

YES: The potential for a global pandemic could be an economic “outliers” which, if not checked, could wreak

economic havoc around the globe. This is unlikely, particularly if this virus is ultimately not much worse than the more common flu, but if death rates rise and the contagion spreads, it might result in huge capital outlays to fight it, the temporary shuttering of China’s market, and overall global consumer fear, which can disintegrate economic growth.

Austin Neudecker, Weave Growth

YES: The state of the economy is not just a measure of global output and consumption, but a shared belief about our collective future. Events (e.g. coronavirus outbreak) that disrupts the complicated, interconnected system (halting Chinese manufacturers or access to Chinese consumers) can cascade into large financial disruptions. Though the health threat is real, the current downturn is driven more by concerns about the future (a potential pandemic). Regardless, fear alone is sufficient to spark a recession.

Bob Rauch, R.A. Rauch & Associates

NO: Most likely, based on results of SARS in 2003 and other pandemic events, the impact will be tens of billions of dollars per year but not enough to throw a strong U.S. economy into recession. The bottom-line result of coronavirus will likely be enough to reduce GDP by 0.1-0.2 percent. Naturally, certain businesses will suffer more than others. Travel and tourism take the biggest hit but pharmaceuticals may actually improve.

Contact:

Renata Ramirez
renataramirez@sandiego.edu
(619) 260-4658

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