The virus, the economy, the markets and the press

Will Covid-19 (the coronavirus) become a worldwide pandemic, killing tens of thousands and inducing recession? Or will it become just a seasonal hazard like most influenza outbreaks?

The best answer to those questions at the moment is: we don’t know. Disease outbreaks disrupt both demand and supply; consumers stay at home and factories fail to produce finished goods and components. In both cases, the effect is likely to be temporary. Consumption and production will resume once fears subside.

Experience suggests the world will “muddle through” as it did after the SARS outbreak of 2002–03. The IMF has lowered its global growth forecast for this year, but only by 0.1 of a percentage point, which is a rounding error. Given this reasoning, the financial markets took a pretty relaxed view of the crisis until February 21st. But then there was a burst of cases in Italy and South Korea. The week of February 24th has seen a much stronger sell-off in equities while the yield on the ten-year Treasury bond has dropped to a historic low of 1.3%. In other words, investors are willing to accept a very low return in order to keep their money safe; a sign of risk aversion.

To some, including President Trump, all this is exaggerated. Most people who catch the virus experience only mild symptoms and many of those who died were elderly, with pre-existing conditions. But it is very early days to be confident about how things will play out. The virus is less lethal than SARS but spreads more easily, which explains why it has been difficult to contain. Some medical staff have died. The virus may mutate, as others have before it.

However, one point really needs to be emphasised. This is not a case of a panic created by the press; a line pushed by some people online and within this writer’s hearing. The headlines have been generated by the actions of the authorities. Whole provinces have been shut down in China, as have towns in Italy; flights have been cancelled; sporting events have been postponed; factories and schools have closed. All those events are worthy of prominent coverage.

But have the actions of the authorities been driven by press coverage? It only takes a moment of thought to see this idea is nonsense; the harshest measures have been taken by China, where the press operates under severe restrictions. The press does not want to see sporting events cancelled — quite the opposite.

Perhaps the authorities have overreacted but they have been guided by medical advice, which is that swift action to prevent the virus from spreading will reduce the long-term damage. We will never know whether they are right; we can’t rerun the history. But it is the official actions that will have an economic impact, not media coverage.