by Sean Kelly
As world health authorities scramble to contain the spread of a new coronavirus that originated in China, global economists are weighing the potential economic fallout if a full-blown pandemic develops. The fast-moving, respiratory illness which has been dubbed “2019-nCoV” or the “Wuhan Virus” has killed over 100 people, infected over 4,000, and now reached 13 countries including the U.S. and Australia as well as nations across Asia and Europe.
A deadly contagion could not come at a worse time for China as their economy has slowed, their debt has soared, and they’re still reeling from a punishing trade war with the United States. The pneumonia-like virus has prompted the lock down of entire Chinese provinces, the closing of manufacturing plants, the dismissal of migrant laborers, and the extension of the week-long Lunar New Year holiday in an effort to limit travel. Chinese transportation, tourism, catering, and retail businesses are enduring a cumulative ‘hit’ that could significantly slow first quarter economic growth. If the virus multiplies unabated, there’s increasing fear that it could infect the broader global economy.
Many estimates of the economic and social costs of modern-day pandemics are based on the effects of the Great Influenza of 1918 which also had its origins in China and killed as many as 100 million people worldwide which eclipses the casualty count of World War One. According to New York Times best-selling author John Barry, it killed “more people in twenty-four months than AIDS killed in twenty-four years [and] more in a year than the Black Death killed in a century.”
Back in 2007, the St. Louis Fed reported that, “the possibility of a worldwide influenza pandemic (e.g., the avian flu) in the near future is of growing concern for many countries around the globe. The World Bank estimates that a global influenza pandemic would cost the world economy $800 billion and kill tens-of-millions of people.” In a more recent 2018 study, the bank examined other deadly global pandemics like SARS, swine flu, MERS, Ebola, Zika, yellow fever, Lassa fever, and cholera. They concluded that the annual global cost of moderately severe to severe pandemics is about $570 billion, or roughly 0.7% of global income.
Things are bigger, faster and more consequential in 2020, however. Global trade is more robust, world travel is more commonplace, and the spread of infectious disease is more rapid than at any other time in history. According to a recent analysis by Imperial College London, “the scale of the [current] outbreak will depend on how quickly and easily the virus is passed between people. Using data collected up to 18 January, it appears that, on average, each person infected with the virus passes it to between 1.5 and 3.5 other people.”
None of this has been sitting well with world markets. On Monday, the Dow posted its worst day since October losing over 450 points as it tumbled into the red for the new year. Investors across the globe — from Europe, to Asia, to the Middle East dumped stocks on fears that the mysterious new virus will sicken the world and trigger a steep contraction. Stephen Innes, chief market strategist at AxiTrader, aptly summarized the unease stating that, “With coronavirus worries on the rise, the market continues to struggle with the unenviable task of factoring in absolute terms its implied economic devastation.”
All of this has sparked a dramatic selloff in equities and a rush to safe haven assets. Gold is now trading near $1600 an ounce and is up more than 20% over the past year. While it had already been buoyed by a host of global uncertainties, the added threat posed by the coronavirus could be a safe haven game changer.
Gold’s pandemic record is worth noting. It rose in 2002 (SARS), 2009 (Swine Flu), and 2012 (MERS). And in 2019, there are no anti-virals or broad-spectrum defenses to combat the deadly new pathogen that has now pushed beyond China’s Hubei province, infiltrated the mainland, and infected the broader global community. In a world where standard safeguards fail to protect us, gold has provided safety, security, and economic healing for as long as epidemics, pandemics and plagues have threatened the wellbeing of humankind.