It is too early to gauge the full economic and trade effects of the coronavirus outbreak, however, a number of global agencies have come out with their estimates of the likely damage to international trade and various economies across the globe.
The United Nations trade agency estimated that a shortage of industrial parts from China caused by the outbreak has set off a “ripple effect” significantly affecting other countries around the world.
Because China has become the central manufacturing hub of many global business operations, a slowdown in Chinese production has repercussions for any country depending on how reliant they are on Chinese suppliers.
The report states that China’s slowdown has caused a drop of over €40bn in exports to the country in the last month. The European Union was most affected, according to the agency, accounting for about one-third of the total loss in trade, or nearly €14bn.
Exports of the United States were second at nearly €5bn, and Japan was third at almost €4.6bn. This loss of trade is likely to increase over the coming months as the virus reaches global epidemic dimensions, and forces the shutdown of manufacturing plants in Europe and America.
A more worrying report was issued by the OECD. Its outlook statement warned of the likely impact from the broader virus contagion across the wider Asia-Pacific region and on into Europe and North and South America.
The outlook says such expanded contagion, now only too evident, could cut global growth to as low as 1.5% this year, halving the OECD’s previous 2020 projection. Attempted China-like containment measures, with associated factory closures, loss of business and consumer confidence is forecast to drive some countries into recession, including the Eurozone countries and Japan.
If the economic consequences of the virus reach this level of severity, Irish exporters will take the type of battering not seen since the aftermath of the financial crisis and with them the Irish economy as a whole.
Even in the best-case scenario of limited outbreaks in countries outside China, a sharp slowdown in world growth is expected in the first half of 2020 as supply chains and commodities are hit, tourism drops and confidence falters. Global economic growth is then seen as falling to 2.4% for the whole year, which is deemed very weak.
The Irish Government would be well advised to take the OECD’s recommendation with regards to facilitation of flexible working to preserve jobs.
And also its recommendation that governments should implement temporary tax and budgetary measures to cushion the impact in sectors most affected by the downturn, which in the case of Ireland would include travel and tourism businesses, agri-food producers and the wide range of small manufacturing companies who are the supply chain for many of the multinational export corporations operating here.
The pressures arising from the virus outbreak brings into sharp focus the need for a frictionless trade deal with the UK, which accounts for a major slice of the EU and Ireland’s international trade as demonstrated by the €319bn of EU exports to Britain last year.
By comparison, the EU exported a third less (€198bn) to China in 2019. Whereas we have limited control over the spread of the coronavirus and its impact on trade, the negotiation of a deal with the UK that does not disrupt trade is within our control in Europe.
Equally, the UK should be conscious of the double impact of a loss of trade this year because of the virus and the potential for even further losses next year if they exit the EU without a deal. It is an ill wind that blows no one any good.