‘Too soon to tell’: Coronavirus could take big toll on US economy

United States President Donald Trump on Wednesday evening deviated slightly from his usual playbook of relentlessly touting the strength of the US economy, acknowledging during a news conference that the coronavirus could dent growth. 

But when asked about the sharp selloff in US stocks – that has seen the DJIA plummet more than 2,000 points or 7 percent since the start of trading this week – Trump seized the opportunity to deflect blame on to his Democratic rivals for the presidency who had held a televised debate Tuesday evening. 

“I think the financial markets are very upset when they look at the Democratic candidates standing on that stage making fools of out of themselves,” Trump told reporters. 

“And it (the stock market) certainly took a hit because of [the coronavirus] and I understand, that’s also because of supply chains and various other things,” he added. “I think the stock market is will recover. The economy is very strong.” 

Though Trump’s outlook may be characteristically rosy, according to experts who spoke with Al Jazeera, the risks the outbreak presents to the US economy – now in year 11 of a record expansion – remains far from certain.

‘Things may calm down’

 At least 2,770 people have died from the coronavirus and although the outbreak shows signs of slowing in China, it is accelerating in other parts of Asia, Europe and the Middle East.

On Wednesday, concerns mounted in the US after health authorities confirmed a Northern California resident who had not travelled abroad to an affected area or had contact with someone known to be infected had contracted the virus.

On Thursday, Goldman Sachs strategists lowered their profit growth outlook for US companies this year to zero, citing fallout from coronavirus including a severe decline in Chinese economic activity, lowered end-demand for US exports, supply chain disruptions, slowing US economic activity and heightened uncertainty. 

But some forecasters are reluctant to make definitive calls on how the outbreak could unfold and inform the trajectory of fears that are already gripping investors and businesses. 

 “It is still too soon to tell because we do not know how far geographically it will spread,” said Christine McDaniel, a senior research fellow focusing on trade at George Mason University’s Mercatus Center.

“If the new reality is that we are going to be living with this new virus strain, then the sooner that reality sets in – and individuals and workers and firms internalise, ie, once societies resign to this new reality – then the fear factor may diminish,” McDaniel told Al Jazeera, adding that “things may calm down.”

Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations, also thinks it is premature to advance concrete estimates where coronavirus and the economy are concerned. 

But he told Al Jazeera that the implications for the aviation, hotel, restaurant, cruise and shipping industries were undeniably bad, adding that the retail sector “could also potentially be another victim” on the demand side of the economy.

That would be a big blow because consumer spending is the engine of the US economy, accounting for some two-thirds of growth.

“It is very clear that this is an acute disease outbreak, [with] an impact on people’s consumption patterns,” said Huang, adding that citizens adopt “social-distancing measures and governments adopt quarantine-related measures”.

Knock-on effects

With governments – including in the US – responding to the outbreak by curtailing flights, the effect on the travel sector is likely to be vast.

Only Chinese airlines are currently flying from China to the US, with fewer than 1,000 travellers arriving on American shores a day – other carriers have simply cancelled flights.

This could have a knock-on effect for the whole US economy says McDaniel, who notes that the tourism industry accounted for about 9 percent of the country’s economic output in 2018, about $1.87 trillion of gross domestic product. That translates into almost eight million jobs and 11 percent of exports.

“People are not going to want to travel with this new fear, at least until a vaccine is found,” said McDaniel. “For every one dollar spent directly on tourism and travel, another 72 cents is [indirectly] generated from that dollar.”

On the supply side, some experts are concerned that the high level of absenteeism at plants in China could threaten US manufacturers who rely on Chinese-made components, particularly the automotive, electronics and pharmaceutical sectors.

“Many pharmaceuticals so heavily rely upon active pharmaceutical ingredients from China and India,” Huang said. “If factories are shut down past April, it could have a huge impact on the global drug supply.”

‘This will be contained’

As fears mount that US companies will face losses stemming from the outbreak, investors have been fleeing stocks for safe havens like gold and bonds. 

But some analysts caution against using stock prices as a proxy for the economic impact of coronavirus. 

“The stock market is overreacting, like they always do,” said Robert Scott, an economist at the Economic Policy Institute.

“But there’s no question it can have a real negative impact on the economy,” he told Al Jazeera. “It could certainly curtail trade between the US and China in the short term, over the next month or two – particularly disruptive in manufacturing,” he added noting how dependent US manufacturers are on parts sourced from China. 

That interdepenency, said Scott, bolsters arguments against globalisation, which Democrats and Republicans have criticised for damaging US manufacturing and costing US jobs. 

“This illustrates to me one of the real costs of increasing globalisation, this reliance on extended international supply chains,” said Scott. “If more of these supplies were produced in the US, we’d be less vulnerable to this type of disruption.”