“New data paint grim picture of coronavirus fallout,” read a headline in the Financial Times newspaper last week. My heart sank when I saw it. But when I anxiously scanned the article, it wasn’t about the spread of the coronavirus or the deaths it is causing.
The main takeaway was, “Purchasing managers’ indices for Hong Kong and China fell to all-time lows in February, consistent with a deep recession, while the figures pointed to a sharper slowdown in Australia, Japan and elsewhere.”
While most of us are worrying about the progress of the pandemic and how to protect our loved ones, the ruling classes around the world are more troubled by its economic impact.
Donald Trump is particularly transparent about this. He has been playing down Covid-19 because he’s relying on a relatively robust economy to get him re-elected president of the US in November.
The Federal Reserve Board, the US central bank, made an emergency half a percent cut in interest rates last week.
The last time it did this was at the height of the financial crash in 2008. World stock markets have also dropped sharply.
These economic fears are justified, for two reasons. First, the coronavirus began in China, the biggest manufacturing and exporting economy in the world.
The Chinese government’s drastic response—locking down large sections of the population to stop the spread of virus and cutting off the flow of crucial goods into the transnational production networks that drive the world economy.
Hence the “grim data” that depressed the Financial Times. China’s exports contracted by 17.2 percent in January and February.
According to the Chinese government, less than a third of small and medium-sized businesses, which employ almost 80 percent of China’s labour force, are operating normally.
The Chinese slowdown, plus whatever similar effects the spread of coronavirus has in the rest of the world, will probably be enough to cause some kind of global recession. Manufacturing industry in Italy, after China and South Korea, is already experiencing a contraction.
But, secondly, the world economy was already in a poor state before the coronavirus. The US and Europe have been suffering from what even mainstream economists call “secular stagnation”—chronic slow growth—since the Great Recession of 2008-9. The so-called “emerging market economies” of the Global South, including China and India, were slowing down.
Central banks have tried to keep the world economy going by continuing with the “unorthodox” monetary policies—quantitative easing and keeping interest rates ultra-low or even negative. This has fuelled a stock market bubble that has made the ultra-rich even more obscenely wealthy than they already were.
Some mainstream economists have been puzzled by the collapse in share prices a fortnight ago, which they argued wasn’t justified by the underlying economic circumstances. The reason seems obvious. Coronavirus effectively pricked a stock market bubble inflated by cheap central bank money.
Global stock markets dropped again sharply on Monday in reaction to a 30 percent fall in the oil price—the biggest since the 1991 Gulf War. Saudi Arabia’s crown prince Mohammed bin Salman has taken it into his head that the coronavirus crisis is a good moment to launch an oil price war against Russia.
Now, as after the crash, there is a so-called “flight to quality”. In other words, investors are buying up ultra-safe assets such as Treasuries—US government bonds—and gold. The gold price reached a seven-year high at the end of February.
Well before coronavirus central banks were warning that their easy-money policies since the crash mean that they have very little spare ammunition left to combat another big recession.
As Lee Humber argues in the latest issue of Socialist Review, Covid-19 is probably a result of the industrialised farming methods. It isn’t an “external” shock to the system. But it is making an ailing capitalism even more ill.