Economic impact of Wuhan virus worrisome, potentially devastating

Economic damage of virus concerning

As all levels of government grapple with the challenges of curtailing the spread of the Wuhan virus, politicians need to be mindful of one timeless precaution – do not make the cure worse than the disease.

The spread of the corona virus is clearly something that needs to be stopped or at the very least delayed.

After all, health authorities want to flatten the contagion curve and not overtax health facilities, resulting in needless deaths.

Now, common sense dictates that is a wise approach. We’ve all seen the disaster that is China, Italy, Iran and soon other countries such as Spain, France and Germany.

The trouble with lock downs, however, is you also shut down your economy.

So all levels of government need to be careful about their advice and admonitions.

Some cities such as Ottawa, for example, are advising people to stay home unless they must go out. Others have advised against going out to restaurants and bars. Still others are imposing 9:00 p.m. to 5:00 a.m. curfews.

This is quite a step up in demands for social distancing. It is one thing to advise people who are ill or who have been exposed to someone who is ill to stay home; it is quite another to advise otherwise healthy people not to go about their daily lives and enjoy living.

What I find ironic is the fact these increased demands for social distancing were not being voiced in early January when the extent of the outbreak in China became know. Quarantining China – just another form of social distancing – would have been the smart thing to do. A travel ban on anyone coming from China would have done more to limit exposure at home than all the social distancing being recommended today.

The danger, now, is that we go overboard. The more damage we do to the economy, the harder it will be to recover.

As it is, we are on track to a global recession. China’s economy has been dealt a massive body blow. GDP growth which had been running in excess of 5 per cent is not being forecast to drop to well under two per cent. With the Chinese economy making up 16 per cent of global GDP, avoiding a global recession is next to impossible.

What’s worse is that there are indications the Chinese economy may not rebound nearly as quick as had been hoped. Economists had thought China could recover by mid-year. But a severe lack of liquidity and massive debt means the rebound will not come until mid-2021.

In Canada’s case, we are dealing with not only the effects of the virus but also lower oil prices, loss of investments and a lower valued dollar.

Weathering the virus over the next couple of months will be hard enough. But getting everything back in working order afterwards will be the real test of the economy’s resilience.

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