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MACRO MACCHIATO: Wuhan Coronavirus

The Wuhan Coronavirus and China’s nationwide public health emergency have caused a flurry of speculation about how the shipping markets could be affected. P&I Clubs have issued circulars about what happens when ports are closed. Banks have estimated the hit to global commodity consumption. Seaports and airports around the world have set up fever checkpoints to screen incoming passengers.

I’m reminded of the SARS panic of 2003. I was working at HSBC in London back when SARS happened. The message from colleagues in China back then was a bit of a mantra at HSBC - "Remain Deadly Calm at All Times." Back in 2003, China was a much smaller single influence on the global economy and on shipping, though we still wrote lots of articles in our Weekly Commentary with titles like Why China Is So Important. SARS infected fewer than 10,000 people globally in 2003 but cut about two percentage points off Chinese GDP growth that year. It didn't really affect shipping – our chart of the Baltic Dry Index monthly average shows consistent growth throughout 2002 all the way to March 2004. The macro-economic momentum was not derailed by the outbreak of the virus.

This time could be different for several reasons:

China is a much larger component of global GDP and much more integrated with the global economy than it was in 2003. It is a key market for consumer goods imported from the West. Quite literally, when China sneezes, we now all catch a cold. Now the virus has been confirmed as infectious from human to human, China has no choice but to lock down entire cities. If the effects last beyond CNY then we could see lower industrial production which will filter through to raw materials and energy imports as well as to manufactured goods exports.

This public health emergency has come during the lunar new year seasonal dip in GDP and is likely to intensify that dip as consumer spending falls. The lunar new year seasonal dip in freight market time series has become more pronounced as China’s weight in the data has grown. Assuming the virus event subsides, GDP and spending should rebound later on, leading to a freight market rebound.

A fatality rate – so far – of around 3% makes this virus about two to three times more fatal than flu. The 1919 global flu pandemic killed an estimated 1% to 2% of all infected persons. That sounds tolerable, if we are thinking statistically. But, when multiplied by the global population, that fatality rate killed more people than World War I.

The severity of a viral outbreak is measured on two axes: the rapidity of spread and the fatality rate. The challenge for public health officials is that it is currently too soon to estimate either of these vectors, so they have to assume the worst. Lockdown slows the rapidity of spread. The fatality rate is less directly manageable, because it depends on the general health of the infected person and the community at large. Most public health officials are being complimentary about China’s handling of the event and about the information the government is sharing. Quite soon, we will know the scale of the viral event we face.


This isn’t 28 Days Later or The Walking Dead. Take the media hysteria with a pinch of salt and repeat the mantra, “Remain Deadly Calm at All Times.” This is a coronavirus – like the common cold – and viral events tend to peak and decline quite quickly as human immune systems learn to defeat them. That’s no comfort to anyone already infected with the Wuhan Coronavirus, just as my three year old child currently suffering from Winter Vomiting Virus is not comforted by its slow infection cycle and low fatality rate. It should be of comfort on a macroeconomic scale to know that past experience suggests that deceleration in economic growth during virus events has usually been followed by a rebound.

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