Khin Maung Nyo (Economics) - Coronavirus crisis and how to overcome it for businesses

What medicine will help?

Supply chain disruptions are common. These problems can be solved using traditional business methods. But the supply chain disruptions caused by the coronavirus are different.

What is certain is that the new coronavirus will definitely hurt the US economy. If you look at the stock market, you can see that this virus could cause a long-term economic slowdown.

In particular, this crisis does not fit in with the government's usual methods of stabilizing the economy. If economic growth slows, it will be because the economic impact of the virus and the government's methods of stimulating the economy are not compatible, in other words, the medicine does not fit the disease.

Lower interest rates can make borrowing cheaper. Stock prices rise. But factories that are closed because workers are sick can't keep producing goods. Governments can put money in people's pockets. They can give tax refunds. But stores can't keep stocking shelves empty.

There are not only natural policy constraints on how to mitigate the damage, but also weak economic and political conditions. The Fed has already set interest rates at a very low level, making it difficult to lower them further. The president is trying to get re-elected, and Congress is divided between his own party and his own party.

If we compare the coronavirus to a fire, those trying to keep the economy from collapsing are like those fighting a fire with inadequate equipment. They are also fighting among themselves. They also lack the chemicals needed to put out the flames.

How can fiscal and monetary policy work together in this situation? This is about reducing the supply chain disruptions and reducing the second-order effects. The United States has not experienced a recession lasting months in more than a decade. If it did, incomes would fall to increase unemployment. We would experience a recession unlike many previous recessions.

The main supply chain problem caused by the coronavirus is the inability to produce goods. With workers in China quarantined, factories are no longer able to come and work, and production is no longer possible. This has led to the disruption of some goods that can only be produced in certain parts of the world.

Multinational companies are small and sparse, with few inventories. They use just-in-time delivery to get goods to where they need to go. They don't stock a lot. American companies that rely on Chinese factories are running out of essential supplies. There are going to be major shortages soon. But many economists don't understand how interconnected the global supply chain is. This is especially true for pharmaceuticals and electronics.

Macroeconomic policies at the national level cannot solve this type of shortage.

But if the supply chain chaos shifts to supply chain chaos and people stop buying, then national economic policies can help.

For example, a store with no products on its shelves is facing a supply chain problem, while a store with full products on its shelves but no customers is facing a supply chain problem.

It's easier to increase purchases than to increase sales in the short term. But sales problems can lead to purchasing problems, purchasing problems to sales problems, and vice versa.

First, stores are out of stock, then people are not going to stores, losing their jobs, losing their income, and being unable to buy anything. We are now facing a situation and danger.

Now in Italy, people are suffering every day, tourists are coming less, people are not coming to stores for fear of getting infected. Shopkeepers will lose their jobs. Income will decrease. They won't be able to shop. They won't be able to buy anything. Then the economy will collapse.

Similarly, if the financial markets are not active, businesses will go bankrupt. They won't be able to get loans. Some businesses will lay off staff. Some factories will close.

So economic policy is not about solving the supply chain problem, but about preventing the problem of sales from becoming a problem of purchase. The government provides tax breaks and unemployment benefits.

Lower interest rates. This way, businesses and people can have more money to spend when they are in trouble. It gives them a breather.

But once the coronavirus spreads in the United States, it's hard to predict what will happen. If people stop traveling, shopping, and working, how will the service sector survive?

On September 11, 2001, the World Trade Center in New York City, USA, was attacked by terrorists. Air travel was temporarily suspended. But many Americans did not lose their jobs. It is impossible to predict what will happen now. You can think whatever you want.

There are not many solutions. Regarding the sales problem, we cannot immediately increase sales and produce goods. If the sales problem becomes a purchasing problem, we will see how much the central bank can do and how beneficial it is.

Ideally, public health programs can effectively control the disease, and there is little need for the help of commercial firefighters.

Infectious diseases and the global economy

The coronavirus, which originated in China, has disrupted China's exports and disrupted the entire global supply chain. The Lunar New Year holiday has been extended to control the spread of the virus. Now it's time for workers to return to work, but many companies have not yet reopened. Consumers are not going to stores or restaurants, and transportation is not smooth.

So the virus, and the efforts to contain it, are currently a huge threat to the global economy. This time, it 's even worse than the SARS outbreak in 2002. This is because China's economic infrastructure is four times larger than it was before, and it's much more interconnected with the rest of the world.

So, China's economic growth in the first quarter of 2020 will now fall to 1.5%, down from 4.6% in the same period last year. The global economy is also expected to contract by 0.5%. This reduction is the lowest since the global economic slowdown of 2008-2009.

China exports electrical and electronic goods, five times more than Germany, and 30% of global exports. So the production of electronics and computers is affected. Wuhan, where the disease originated, is a hub for automotive components, and engine and motor production has quadrupled in the past ten years. Now those factories are closed.

So even car factories around the world are finding it difficult to get parts. There is a possibility that they will close soon. For example, the American-Italian car company Fiat Chrysler . Hyundai will also close its factories in South Korea. Volkswagen will reopen its factories in China on February 17.

Emerging Asia is also suffering. South Korea, Vietnam, Indonesia, and the Philippines all import a third of their finished goods from China, so emerging Asia is arguably the most affected.

On the other hand, Chinese workers are out of work, staying home, which is reducing demand. China imports 11% of the world's goods. Twenty years ago, it was only 2.7% of the world's goods. It is now the world's second largest importer.

Popular brands such as Levi Strauss, Ikea, H+M, Nike and Starbucks have also closed stores in China. Walt Disney operations in Shanghai and Hong Kong have also closed.

Tourists visiting China have also fallen. So far, 20 airlines have canceled flights for March and April. China, which spends about $279 billion on flights and 150 million people a year, is already hurting international tourism. Travelers are canceling their reservations. Japan, South Korea and Thailand, which are popular destinations for Chinese tourists, have been hit hard.

China is the world's largest importer of raw materials such as metals and iron ore. It has announced that it will temporarily suspend copper exports to Chile and Nigeria and close factories.

China may recover in the second quarter. They are thinking that the pandemic will pass. But even if it does, they will have to do a lot to cover the losses and damage.

China's planning department has been looking at the spread of the virus in its own region, making its own calculations, and then issuing instructions to provinces and cities to resume operations.

The China-US trade war has cost US companies $46 billion since February 2018. Interest rates were cut three times in 2019. Now, a phase one deal has been reached. But tariffs are still being levied.

The more businesses in China cannot operate, the slower the global economy will be. What we are experiencing now is like the feudal era of Europe. Every city is fighting back and forth.

The infection rate is still high, people with no contact with China are also infected, and the death toll has surpassed 1,000, but the death rate is decreasing, which is encouraging. However, it will take a long time for Chinese factories and Chinese trade to return.

Not to mention anything else, Chinese businessmen and experts meet every year. The China Economic Forum was supposed to be held in March, but it was postponed indefinitely.

One thing to note is that online shopping is becoming more popular than the open market. Shipyards are reopening, but workers are not coming. Work days have to be postponed. People who come from far away to work are not coming back. Children's schools are also closed, and plastic and metal packaging businesses are closed due to lack of raw materials. Those who come to work are also being tested first. Offices and businesses cannot reopen unless the health department approves. Only a few get permission.

Americans have been trying to reduce their reliance on China since the Sino-US trade war. But everything from electronics to door hinges is still imported from China. If Chinese factories are closed, it won't be the Chinese government closing them, nor will it be the US government stopping them. It will hurt US and Mexican auto factories.