Jim Power: Covid-19 is also bad news for the health of economic forecasters

The hazards and futility of trying to forecast the future have been highlighted in dramatic fashion by the escalation of the Coronavirus.

Jim Power: Covid-19 is also bad news for the health of economic forecasters

When sat down in early January to consider the year ahead, I had a somewhat more upbeat assessment of global economic prospects for 2020.

This was based on a view that ahead of his re-election bid in November, President Donald Trump would wind down his trade dispute with China and concentrate on ensuring as strong and stable an economy as possible in the run-up to the election.

The theory in relation to President Trump remains the case, but the hazards and futility of trying to forecast the future have been highlighted in dramatic fashion by the escalation of the Coronavirus.

Covid-19 now poses a very serious threat to the health of the global economy for the foreseeable future.

Earlier this week the Paris-based Organisation for Economic Co-operation and Development (OECD) warned of the dangers in a stark fashion.

It pointed out that global economic growth was weak, but stabilising until the Coronavirus hit.

It cites restrictions on the movement of people, goods and services, and the various containment measures taken, such as factory closures as impacting negatively on manufacturing and domestic demand sharply in China.

It goes on to warn that the impact on the rest of the world through business travel and tourism, supply chains, commodities, and lower confidence is growing.

The IMF has a similar take, and indeed it is hard not to.

Economic activity is made up of people buying goods and services, travelling, companies providing goods and services and all of the billions of other transactions that take place every day.

If people and companies curtail these things due to fears over the virus and engage in voluntary curtailment of their activities or are forced to do so, then economic activity will suffer.

That is now happening and could get worse.

The point, of course, is that 2019 was a poor enough year for the global economy and it was already quite vulnerable coming into 2020 and certainly did not need such an unanticipated shock.

The seriousness with which the economic threat is now being taken in amply demonstrated by the fact that the US central benk, the Federal Reserve shaved a half percentage point from US interest rates on Tuesday night as an emergency measure to address the economic impact of the virus.

The real point to note is that this was the first emergency rate cut in the US since the collapse of Lehman Brothers during those very dark and dreadful days.

It just goes to show how real the economic risks are.

Here in Ireland, the economic backdrop has certainly been in a stronger position than the rest of the eurozone going into this crisis.

However, as a small and very open economy that is very exposed to the vagaries of the international economic cycle, the Irish economy is clearly exposed.

The cancellation of the Italian rugby game this weekend will mean that a normal bonanza for the local economy in the Dublin region will be foregone.

Hotels, pubs, and restaurants will lose out.

This is just one example of economic activity being cancelled, but we are likely to see a lot more.

Earlier this week the Paris-based Organisation for Economic Co-operation and Development (OECD) warned of the dangers in a stark fashion. File picture.
Earlier this week the Paris-based Organisation for Economic Co-operation and Development (OECD) warned of the dangers in a stark fashion. File picture.

International tourism is incredibly important to Ireland and particularly to rural areas.

If people stop travelling for the duration of the crisis, then tourism businesses will inevitably suffer.

On the upside, if fewer Irish travel overseas, they might just decide to holiday in Ireland.

Inevitably, there will also be supply chain issues, meaning that Irish businesses may not be able to access stuff that they import, while export trade might also be adversely affected.

All in all, it is not good news from an economic perspective at a global or domestic level.

However, we cannot be terribly prescriptive at this stage because we really have no idea how bad the virus is going to get and inevitably, different people will react in different ways.

The hope is that it will peak and pass quickly and that much of the lost economic activity will be a postponement rather than a permanent cancellation.

Meanwhile, please be considerate to economists who are once again likely to get their forecasts wrong for 2020.

More in this section