A Virus of Economic Proportions

Without a doubt, the most tragic outcome of the COVID-19 virus outbreak is the thousands of lives lost globally. To date, there have been more than 110,000 confirmed cases and over 3,800 deaths around the world, equating to a death rate of 3.4 percent. While most cases have been mild, the rapid spread of the virus, which is now present in more than 60 countries, has caused considerable anxiety and downright panic. The situation is exacerbated by the non-existence of a cure or vaccine and the fact that there is still much to learn about the virus.

Against this backdrop, many of the affected countries have adopted strong measures to arrest and reverse the rate of infection, some of which have restrained economic activity. For instance, China extended its lunar New Year holiday, temporarily closed schools and non-essential enterprises in many provinces. Meanwhile, many nations have closed their borders to visitors from countries with confirmed cases. In parts of Europe, especially Italy, sporting events are being held behind closed doors (with empty stadia). The global manufacturing, air travel, tourism, energy, retail, shipping and other sectors have been impacted to varying degrees. Further, the uncertainty surrounding the virus resulted in a massive plunge in major equity markets in late February, estimated to be in excess of US$4 trillion. In the sphere of sports, questions have been raised regarding the staging of major sporting events such as the 2020 Summer Olympics in Tokyo, UEFA European Championships and several European football leagues to name a few. Any postponement, cancellation or downsizing of these events could result in further dips in economic activity in the associated nations. In light of these challenges, the outlook for economic activity for many countries, as well as global GDP growth, has already been revised downward. To mitigate the economic risks, the US Federal Reserve has reduced its benchmark interest rates, while central banks in other parts of the world are also considering a more accommodative monetary policy stance. However, it has not all been negative. The emergence of the virus boosted the demand for goods and services in the pharmaceutical and medical industries.

Thankfully, we are yet to have a confirmed COVID-19 case here in sweet Trinidad & Tobago. However, based on the progression of global infections, most experts concede that it is inevitable. While this is indeed a discomforting reality, it should be noted the country can be impacted economically by the virus without even recording a confirmed infection. Consider for example the increased demand for dust masks and hand sanitizers faced by local retailers in recent weeks. The increased sales are a positive offshoot of the sense of inevitability and rising global fears. Another positive development is the willingness of the local business community to explore various options to maintain some level of continuity in the event there is a local outbreak. This of course is informed by the experiences of countries with infected citizens and includes the prospect of allowing employees to work from home. While this is not possible for all jobs and companies, it at least will help to keep the economy from grinding to a halt. The success of such initiatives during the possible outbreak, may help to hasten the modernization of the operations of several companies and usher in a period where much more employees can telecommute, reducing traffic congestion in the process. One can only hope.

Unfortunately, there are also some negative implications for the domestic economy, some of which are already in play. Concerns about the global spread of COVID-19 outside of China, and the related fall in energy demand, have exerted downward pressure on international oil prices. If this trend continues for an extended period, government revenue and domestic growth will be negatively affected. In response to slumping prices, on March 5, 2020 the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut oil production by 1.5 million barrels per day. However, OPEC is finding it difficult to reach an agreement with key non-OPEC producers to cut their output. News of a failed agreement with Russia caused prices to plunge further, as Saudi Arabia slashed its prices, purportedly in preparation to ramp up production, prompting fears of a price war. In the non-energy sector, with factories in China having been shut for an extended period, our retailers and manufactures could experience some challenges replenishing their stock. This could apply further pressure to the already challenged Trinidad and Tobago economy. The outbreak has also subdued activity in the global tourism sector, which is expected to impact the domestic economy directly with a fall in both stay-over and cruise passenger arrivals. The indirect impact relates primarily to the fall in CARICOM demand for this country’s manufactured goods by virtue of the region’s heavy reliance on tourism. CARICOM is the largest export market for Trinidad and Tobago’s manufactured goods.

Should there be an outbreak in Trinidad and Tobago, it is possible that the authorities would consider responses similar to those of the leaders in afflicted jurisdictions. This may include the temporary closure of schools and non-essential enterprises, even tighter border controls and restricting public gatherings. While such actions could help to control the spread of the virus, they can impose a heavy toll on the domestic economy.

COVID-19 is part of a wider family of Coronaviruses from which emerged other fearful viruses such as Severe Acute Respiratory Syndrome (SARS). In the midst of this latest viral outbreak, scientists have asserted that COVID-19 would not be the last such virus the world will have to confront. This is indeed a terrifying declaration, especially given the potential social and economic disruptions such viruses can impose. Nevertheless, rather than panic, we should use whatever lessons are learnt from the current situation to strengthen the domestic response mechanism in preparation for potential epidemics and pandemics. Although this will not insulate the country from such occurrences, it can go a long way to mitigate the effects.