Can the coronavirus impact on the economy cause a recession?

Can the coronavirus cause a recession? This question has been on the minds of so many as it has given the government an extra thought to ponder besides other measures to treat the outbreak.

One of the reasons that spark up this thought is the fact that many global markets fell in the previous week and they have acknowledged that the blow of the outbreak on the economy could be really terrible. A lot of uncertainties arise from the current outbreak’s impacts on the global economy. The intense and lasting impact of the outbreak on the economy will depend on how much longer it continues to spread. If the biotech companies that are working on the coronavirus treatments get “lucky” quick, the society and economy would be able to recover in due time. Unless otherwise is the case.

Concerning the issue of recession, the US stock market has enjoyed an 11-year bull market—the longest of its time. Since the 2008 financial crisis to date, the US market has vehemently thrived in bull territory. By all implications, to consider recession indicates that the US market is steadily sliding into bear territory. A major indicator of this [bear territory] occurred on Tuesday after the Dow Jones Industrial Average fell by 900 points, or more than 3% becoming its worst week since the financial crisis. This happened as a result of growing fears of the novel coronavirus impact on the economy. 

Uncertainties arise from the fact that the full potentials of the virus and its impact are yet to be discovered. Research on the virus and its treatment are simultaneously going on, with considerations of its societal and economic impact as well. All happening at the same time. Therefore, it is quite difficult to say how long the economic strain will last. Until there is a breakthrough in medications for the coronavirus governments will continue taking necessary preventive measures towards the society and the economy.

It has then become an issue of “may” and “may not.” The coronavirus impact on the US market may lead to a recession or it may not. Whichever the case may be, one thing is certain, the impact would still cause significant long-term changes in the global economy. It may be too soon to determine the long-term effects of the outbreak, but it is definitely not too soon to recognize potential recession threats. Companies may have to look for substitute supply chains outside of China and other infected companies.

Unlike the previous recessions, this recession is taking a whole new turn with China as the focus. China is the second-largest market in the world. Both small and big companies look to China for manufacturing. China plays a vital role in the supply chain of big companies like Apple (APPL), therefore, a hit on China is likely to slow down business operations of many companies. 

The US may be able to contain and monitor the outbreak within its territory it cannot fully cover for other economies. China, however, is a highly influential economy and the slightest pause on its economic activities can create a ripple in the global market.