sign uplog in
Want to go ad-free? Find out how, here.

Capital Economics chief economist says the virus crisis could add to 'a growing pushback' against large and complex supply chains

Capital Economics chief economist says the virus crisis could add to 'a growing pushback' against large and complex supply chains

A longer term consequence of the coronavirus crisis could be that it prompts moves to deglobalisation, according to the chief economist of global independent economic research firm Capital Economics.

In an article published on Capital's website, group chief economist Neil Shearing says looking "beyond the next year or so" one plausible consequence of the virus is that it could accelerate the process of deglobalisation that is already spreading through the world economy "and which we have previously warned about".

"One catalyst for this could be a political shift in China itself. Some commentators have speculated that, since the virus has undermined the popular belief that concentrating power in the Party is the best way forward for China, the Party may start to liberalise and relinquish control. This could, in time, push China and the West closer together," he says.

"But it’s equally possible that, once the virus is brought under control, popular feeling may start to shift again. Beijing may be able to make the case that the outbreak was only contained thanks to a strong centre. And if that happens, it could entrench China’s existing economic model and make further clashes with the US more likely in the future."

Shearing says a more immediate way in which the crisis could accelerate a process of de-globalisation is by adding to a growing pushback against large and complex supply chains.

"Up to now, the threat to supply chains has been viewed mainly through the prism of policy and technology. The US-China trade war, alongside Brexit, undermined the previous belief that free trade was an immutable pillar of the world economy. At the same time, new technologies such as 3D printing have enabled the re-shoring of some aspects of manufacturing production that were previously offshored to emerging economies. Both factors seem likely, in our view, to cause an increasing number of firms to question the benefits of maintaining large supply chains."

The coronavirus outbreak has highlighted another vulnerability in global supply chains, Shearing says.

"Many firms are now warning about an impending shortage of component parts caused by factory closures in China. Some have already announced production suspensions as a result. More will inevitably follow if the closures in China continue.

"It’s difficult to judge how the economic effects of the virus will play out over the next ten days, let alone the next ten years. But it’s possible that, to policy and technology, we may soon have to add the threat of global pandemics (and indeed natural disasters more generally) to the list of factors threatening the future of globalisation."

In terms of the short term, Shearing says the spread of the virus has created "a cottage industry" for economic forecasters.

"It is now all but certain that China’s economy will contract in quarter-on-quarter terms in Q1. We have pencilled in a fall in output of 2.5% q/q (-10% annualised) on our CAP measure in the first quarter. The more important question, however, is how quickly any lost output can be made up."

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

25 Comments

We should only be so lucky.

Good.

Belt and Road Initiative (BRI) is designed to diversify supply chain risk, raise standard of living and purchasing power of additional 1bn ppl, therefore, develop many more market opportunities.

Supporting BRI, Benefiting yourself.

加油武汉,加油中国,加油全世界。

11
up

Hahahahaha

"加油武汉,加油中国,加油全世界。" Translates to: "Come on Wuhan, come on China, come on the world"

Go fight win! Team Astroturf!

China is for Chinese & Chinese is for China, you're right.. but that 1bln ppl? is the current Chinese poor (remember rich Chinese is 350Mil, the poor? is around 1.3bln) - China/Chinese only deal/gamble with the looser, they always gamble to win, the BRI you've mentioned is about diversify supply chain risk/path etc. but? where does it stop? in China isn't it? Not in Brazil, Indonesia, Russia. C'mon challenge my first sentence, you're here as by products of 'commonwealth' otherwise you won't be here. Really you need to convince the whole world that, China is for Africa etc - let alone for the world.
No, re-read the above again, re-visited many countries in the world these days - And tell me which one, will proudly owed their existence from China.
A couple/few of ruling elites?, property owners on the host countries? - China/Chinese tentacles, only exist in the country that allow them to purchase a land, with fully owned rights. The world population just slowly took notices of this China behaviour, China is not the answer for world economic well-being. Sorry to burst your enthusiasm bubble.

China is for Chinese & Chinese is for China, you're right.. but that 1bln ppl? is the current Chinese poor (remember rich Chinese is 350Mil, the poor? is around 1.3bln) - China/Chinese only deal/gamble with the looser, they always gamble to win, the BRI you've mentioned is about diversify supply chain risk/path etc. but? where does it stop? in China isn't it? Not in Brazil, Indonesia, Russia. C'mon challenge my first sentence, you're here as by products of 'commonwealth' otherwise you won't be here. Really you need to convince the whole world that, China is for Africa etc - let alone for the world.
No, re-read the above again, re-visited many countries in the world these days - And tell me which one, will proudly owed their existence from China.
A couple/few of ruling elites?, property owners on the host countries? - China/Chinese tentacles, only exist in the country that allow them to purchase a land, with fully owned rights. The world population just slowly took notices of this China behaviour, China is not the answer for world economic well-being. Sorry to burst your enthusiasm bubble.

Donald will put a stop sign to that road!

Is that a Tui ad?

the virus is BAD, but if you look at the positives its good for other low cost manufacturing countries as companies look into diversifying supply chains. India comes to mind as a winner out of this pity we don't have a FTA with them yet

Time for those Low Cost economies to step up and take over:

https://wolfstreet.com/2020/02/17/it-starts-apple-throws-revenue-guidanc...

The problem being that these other economies are only just beginning to feel the effects of what will surely be a significant outbreak there also in time.

Watch out US sharemarket opening tomorrow morning...................

Antonymouse -the scenario you quote is what we are going to get with or without coronavirus- what you describe is what the world will look like if ever we achieve zero carbon emissions.

Some "Impure Thoughts" from Jim Kunstler:

What if the Corona virus turns out to be a genuine pandemic with legs, not some punk-ass, flash-in-the-pan bug like SARS… and infects hundreds of millions around the world…? And what if it happens to go logarithmic in the USA, as in China now…? And what if takes a few months, or half a year, to do that…? And what if Americans will not get on airplanes when that happens…? Or gather together in large numbers…? Or if government imposes quarantines …? Will the parties hold their nominating conventions? Might the November election have to be postponed?

Just sayin’… since nobody else seems to be talking about it.

More:

https://kunstler.com/clusterfuck-nation/impure-thoughts/

"Chinese ambassador hits out at New Zealand travel ban in response to novel coronavirus outbreak"
More bullying from China today
"China's ambassador to New Zealand says it not necessary to impose restrictions on trade and travel in response to coronavirus.
Ambassador Wu Xi spoke out after New Zealand re-imposed a travel ban on foreign nationals coming from China over the weekend.
Xi said the coronavirus outbreak was "generally under control" and China was making a "miracle" fighting against the virus.
"We are fully confident we will soon overcome the current difficulties and we will be able to embrace one another once again."
If our supine measures are draconian, how would the CCP's measures be described?(apart from miraculous"

CCP ruling elite already implanted plenty of 'magic weapons' within NZ & OZ - so very tough luck now if wanted to cure heavy illness, the best those countries can do just buying time/remission, in the end? God of money will rule you over. What happened these days, Chinese capital won't go out to certain places on this planet without two things: 1) procurement of lands 2) their citizen movement. - Simple and it always magically works!

tbh unless nz closes the border completely, travel ban is more of a political gesture as people (not just mainland chinese, but Japanese, Koreans, Australians etc.) from countries where infected were found will always find a way to come in, and there is always a risk associated to it. But i guess t will remain there because of the upcoming general election.

From the streets of Paris to the wineries of Burgundy, from the German town of Füssen near the fairy-tale castle of Neuschwanstein to a shopping outlet in Oxfordshire, England, the numbers of Chinese tourists have visibly dropped since BEIJING banned overseas group tours January 27.
How can the CCP ban overseas travel groups, meetings of the elderly Politburo, and expect to have the right to infect NZ, with Corona and CCP influence?

Guess we're lucky Simon is not PM.

These charts from Capital's website are interesting:
https://www.capitaleconomics.com/the-economic-effects-of-the-coronavirus/

If they are accurate, China must be loosing > 1% percent yearly GDP growth a week at the moment.

"...the Party may start to liberalise and relinquish control. " Well, let's hope that way.

No chance whatsoever; they are Communist and "infallible"

Yes, a big moment for Xi & co right now. I suspect the main solution implements will still be the hammer, backed up by the gun. But as suggested above, this moment could potentially break him. If I were Xi I'd be trebling my personal security arrangements & not leaving the office too much. But boy, I'd love someone to take him out.

And then somebody worse. Like going from Lenin to Stalin.

In some way's the devil you rather than the devil you don't. I agree that the most likely outcome will be a more dictatorial / repressive, Xi / China which is indicative of a party that is not really in control. I suspect that the Chinese people are actually well aware of the enormous failings of the CCP . The CCP's hubris around the actions that they have taken show that they are in reality out of touch with the Chinese people ( slogans are weak - especially it you can't deliver). The rest of the world must wondering if it is a good idea to place some much reliance on China. Perhaps it will only be China's decade or two rather than a century.

The brutal truth is that with increased global travel comes increased immunity as more and more of the population is exposed to different pathogens. Its not 1918 any more. It has been pointed out that there are two far more lethal infections to be wary of, that being scepticemia and influenza, those two account for FAR more deaths each year, year after year. The economic manouvering we are seeing is infact weaponising a public illness...an excuse to throw up barriers to trade, to disrupt trade, to try and show us who is boss...just as wing wow mow or what ever he calls himself.