As the coronavirus spreads in parts of the world and is contained in others, there is growing consensus that things will still get worse before they get better. Economist Mervin Jebaraj predicts that the next several months will see a variety of ripple effects as health professionals, government officials and others seek to contain the deadly virus.
Already, the tourism, travel and convention business is taking a hit. SXSW, the popular Austin, Texas-based music and tech festival has postponed its annual gathering. The Bentonville Film Festival delayed its spring event. Walmart and other companies are corralling employees from travel and large meetings.
Mervin Jebaraj, director of the Center for Business and Economic Research with the UA Walton College of Business, said the coronavirus poses risks to the overall economy that will be easy to detect, but hard to contain.
“I think the risk that coronavirus poses to the U.S. economy and to the global economy is if the infection rate continues to go up, both here in the United States, definitely in a lot of our trading partners in Western Europe and China and South Korea, these are large economies,” he said.
“And if large sections of these economies are shut down to prevent the virus from spreading, that means people are not going out to buy things, to eat, to go to movie theaters. It means that factories are not producing, which means that the whole supply chain of imports and exports going between countries is going to be affected,” Jebaraj added.
He points out that the Port of Los Angeles, a major port of entry for Asian goods and products, is already forecasting a 25% drop in shipments this year, and that number could climb higher.
“That’s going to have a knock-on effect all across the United States because you talk about trucking, the trucks that move those goods across the United States, and then you talk about the manufacturers that were using some of those goods to make other final products, all of that is going to have a knock-on effect, and that’s before we even think about if coronavirus takes root in the United States and starts spreading more rapidly than it has right now,” Jebaraj said.
He was optimistic that the U.S. had avoided a recession in 2019 that many were projecting due to worldwide economic conditions. The coronavirus presents a new danger to the risk of a global slowdown.
“When you were talking about recessions or the likelihood or recessions, I think we were kind of downplaying the possibility of a recession in 2020, in part because we had gotten a little more certainty. We didn’t get rid of all the tariffs with China, but they agreed to some sort of a Phase One trade deal where we backed off some of the tariffs we were imposing on China, they backed off some of the tariffs they were imposing on us. We had a new NAFTA. So, I think we were kind of looking at 2020 and saying, ‘Well, probably no recession in 2020,'” Jebaraj said.
“We’re already going to see some, especially in the first quarter, slower growth rate around the world, including here in the United States, as a result of what’s already happened in China and South Korea. If that persists, we’re gonna see a knock-on effect through more quarters this year, especially here in the United States,” he warned.
Watch Jebaraj’s full interview in the video below.