Will The Coronavirus Trigger A Global Recession?

The progression of the coronavirus outbreak has been making headline news just shy of two months now. While health officials are doing their best to contain the spread of the virus and minimize the potential of a global pandemic, scientists are scrambling to learn all they can on this unpredictable strain, and the global economy is also bracing for what could be a worldwide economic downturn.

China is known as the world’s factory, and while many companies have recently made changes to localize manufacturing, many parts and key components are still produced in China, which can lead to supply chain issues and bottlenecks in manufacturing, halting local production. With many Chinese factories closed indefinitely as a measure to reduce the spread through human-to-human contact, most manufacturing sectors (for example automotive, textile, tech, product, toy, packaging, and even food) will be affected. Global importation of raw materials to China will also disrupt Canadian industries like copper, oil and even our fisheries. If factories are unable to continue production due to supply chain issues, jobs will be put on hold and products will become unavailable, which in turn lowers retail sales, compounding the problem. First-quarter profits are generally lower after the Christmas season, but since we don’t know how long the outbreak will last, we can expect to feel the effects of this downturn for months to come.

The outbreak has also slowed tourism, with most airlines cancelling all flights to and from airports in the affected region. Many travellers have consequently changed their itineraries to switch layovers from Chinese airports to other hubs in neighbouring countries where the threat of infection is lower. The CDC has issued a statement encouraging people to postpone or cancel all non-essential travel to China until the spread of the disease has slowed. Tourism as a whole has slowed, with vacationers cancelling their tours, cruises and holiday plans to Asian destinations specifically, and even North American and European getaways out of fear. Chinese tourists make up a large percentage of global tourism, and with many choosing to stay home, the industry as a whole is feeling the slump. The demand for oil has gone down close to 15% in the past few weeks, with no signs of stabilizing in the near future.

What does this mean on a local level? As long as the virus continues to spread and quarantines, preventative closures and travel restrictions remain in effect, we should expect to feel the effects of a global recession. Whether from local manufacturing plants brought to a standstill over supply chain issues, to more products going out of stock at our local stores, or businesses that rely on tourism to lay off staff to cut costs, we could feel the effects of the coronavirus well into the summer months.