02 Feb How the economy reacts to adverse events
If you have paid any attention to the media over the last couple of weeks, it would have been impossible to miss the outbreak of the Coronavirus, first in China and at the time of writing this, 14 other countries around the world. While truly awful for those affected, it does offer us an insight into how markets react to bad news and uncertainty.
The knock-on effects have included: cancelled flights, a falling stock market, a reduction in trade, travel and visa restrictions, not to mention significant public health costs around the world. Back in 2003, the world was gripped with fear about the SARS virus, which had an estimated economic cost of $40 billion (USD). To put that in perspective, New Zealand’s GDP was $88 billion (USD) in 2003. If you want to know more about the economic effects, have a read of this.
It’s all a little scary. However, it is easy to lose perspective. This virus is truly awful for all those who it effects, and there is a risk that it could escalate seriously. But as of the 29th of January, there were officially 7,711 reported cases in China, and the death toll was in the hundreds. Compare this to the World Health Organisation’s estimation on China’s annual road toll: 256,180. Or the number of deaths from Cancer in China during 2018: 2.9 million. Or the prevalence of diabetes in China: over 100 million people affected.
So, while there is certainly a risk that this virus could turn into something more serious, and the media do like to entice us to think that a new deadly plague is on its way, it’s far more likely to be something run-of-the-mill that finally gets us.
