With new cases appearing in Europe and around the world, Coronavirus is all over the news. We talked to Lars Karlsson, CEO and MD Global Consulting at KGH Customs Services and a senior Customs expert, about the effect the Coronavirus may have on global trade.
What are your thoughts on the latest development?
This is, of course, not the first time we have seen these types of events. In 2002-2003, the virus was called SARS. However, we are in a new situation when we look at the potential effects of COVID-19 on world trade. Although the virus outbreak is found to be comparable to SARS, its global economic impact is likely to be bigger than in 2002-2003 mainly since China today plays a much larger role in the global economy. Also, economies are much more interconnected today than almost twenty years ago.
Until recently, financial markets seemed to think that COVID-19 would be contained but new cases in Italy, South Korea and Iran over the last weekend undermined that analysis. The World Health Organization (WHO) issued somewhat positive reports at the beginning of the week saying that the disease was not yet a pandemic, because it did not spread in an uncontrolled way.
How will the virus affect the global economy?
At present, there is no expectation of any permanent damage on the global economy from this virus since previously countries have been able to compensate for temporary losses after the dust had settled. A further spread of the virus globally could increase the risk of more permanent damage. The following weeks and months will tell us. China’s economic growth is expected to slow down to 4.5% in the first quarter of 2020, in which case the slowest pace since the financial crisis.
Are there countries and sectors that are particularly exposed?
For some countries, the virus can have more serious effects on trade depending on their trade patterns. Specific sectors such as marine equipment, machinery and chemicals are normally produced in parts of China where the virus has been more deeply spread; so for countries whose main industries are trading with these sectors, the effects will appear faster.
Many companies are already dealing with lost revenue and disrupted supply chains due to China’s factory closures, with tens of millions of people left in lockdown.
What should companies involved in global trade do know?
We are always doing everything we can to support our clients, our partners in international value chains and the global supply chain. Like many companies working in the global trade environment, we have informed all our staff on how to handle the situation and risks in a smart and responsible way, based on expert advice.
We continue to monitor the situation and we have contingency pals for different scenarios. That is the only thing to do. We hope for the best and prepare for the worst.