World economy flashes red over coronavirus

What is certainly ironic, is that the Corona effect has brought in measures which until a few months ago we in Malta and Europe, thought of unthinkable

Italy is struggling to contain coronavirus outbreak as cases spread south
Italy is struggling to contain coronavirus outbreak as cases spread south

By Kevin-James Fenech 

Kevin is the founder and owner of JOB Search - and FENCI Consulting 

The world’s leading stock markets have had their worst shock since the 2008 financial crisis and the reason for this is directly related to corporate profits and economic growth all over the world being negatively impacted by the Coronavirus.

The Bank of England has already stated that the virus will have a ‘large’ but temporary hit to UK growth. The G7 is talking about a ‘financial hit’ acknowledging that some major economies could tip into recession.

Whereas the OECD has warned that the global economy could grow at its slowest rate since 2009.

This is the Corona effect!

To my mind, COVID-19 will change the world as we’ve known it this decade both locally and internationally. I think historians will look back at 2020 and treat it as a watershed moment in geo-politics.

China - the world’s powerhouse for the last two decades - may never recover from this shock.

Leading economists believe that there will be long lasting disruption to supply chains negatively affecting auto parts, electronics and pharmaceuticals for several months, even years, to come.

Furthermore, the title ‘undisputed producer of almost anything’, which China has held for decades, may soon transfer to Mexico.

The COVID-19 virus didn’t cause this power shift but the outbreak of the virus will accelerate the process especially with the USA-Mexico-Canada free trade agreement signed in 2019.

It appears that in the next three to five years leading manufacturing, automotive and technology players intend to move from China to Mexico especially if China-USA trade wars worsen and persist.

The Corronavuris has also reminded the world how over-dependent we are on China e.g. surgical masks, medicines, smartphones, etc.

Estimates indicate that about €12 to €19 billion worth of FDI will shift from China to Mexico in the next couple of years.

As a result, Mexico will replace China over the long-term. Today, nearly half of all European or North American multinationals with a presence in China also have a foothold in Mexico and this trend is set to grow and the Coronavirus will accelerate the process.

Locally, if and when there are any reported cases of COVID-19, the Maltese will also experience a shock to the system and our way of life will be disrupted and all this will come at an economic price.

Workers and employees might have to be quarantined and work from home; many parents will be unable to go to work if schools shut down especially if they have underage children; disputes between key stakeholders about who ‘pays’ for the 14 days quarantine will continue; travel restrictions might come into effect; and a lot which we currently take for granted will be affected.

Crises and testing moments have a habit of awakening people and the Coronavirus will do just that at least in the short term.

Generally speaking, I think it took the Coronavirus to make us realise just how much ‘fake news’ there is in social media.

People don’t read what they want; they read according to who they are! So ‘fake news’ on political issues are accepted by those whose political beliefs subscribe to a particular party and discounted by ‘the other side’ and vice versa.

Yet the Coronavirus, I feel, has awakened a lot of people to the volume of ‘fake news’ they are exposed to and this has to be a good thing.

Furthermore, if anyone has done the responsible thing and self-quarantined themselves at home after returning from Northern Italy; they’ve given themselves the unique opportunity to do things they normally don’t have the time for such as quality time with the family; read; think about their life (self-reflection); take a break from the rat race; etc. Every cloud has a silver lining!

What is certainly ironic, is that the Corona effect has brought in measures which until a few months ago we in Malta and Europe, thought of unthinkable.

I am referring to ‘price regulation by the state e.g. surgical face masks, export bans e.g. medicines, travel bans to/from hot spots and quarantine (another word for home imprisonment).

In normal circumstances these measures would be an infringement of basic human rights and European free-market economics but give the threat to public health, extreme measures are necessary.

I think this is good overall since it will make people appreciate how lucky we are/were. Sometimes it takes a shock to the system to make people realise what really matters and how lucky they are.

On a lighter note, it seems like the Corona effect has also made the handshake redundant. We now have the Wuhan shake:

Stay safe, be responsible, and see the silver lining in every cloud.

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