Coronavirus: Tough times ahead

As the novel coronavirus COVID-19 continues to spread at an alarming rate around the world, the World Health Organisation has declared a global emergency.

Understandably, this has contributed to a growing sense of alarm: not just in Malta, which has now recorded its first cases of the disease, but across the entire world.

Nonetheless, the WHO’s warning should be seen more as an urgent reminder of the seriousness of the situation, than as a justification for global panic. It is a call for the world’s health authorities to enact the best possible protection for national populations: and Malta is certainly no exception.

Since its identification was first announced on 16 January, the numbers of suspected and confirmed coronavirus cases around the world have risen sharply. Deaths have also risen rapidly with a similar jump on the same day that cases spiked. Most of the fatalities have been recorded in China, with the majority involving elderly people who had underlying health concerns.

More encouragingly, the number of additional people being infected in China is actually going down. All the same, it is too early to say whether this is just a short-term effect as a result of the Chinese measures to slow its spread.

In Malta, five people have now been diagnosed with the coronavirus Covid-19; and it is likely that we will be witnessing more cases, even if a travel ban to Italy – among other measures announced yesterday - may hopefully achieve the necessary level of containment that is key to preventing further spread.

So while the national sense panic and concern clearly needs to be toned down, it is certainly not unwarranted. What we do not know, as yet, is how this epidemic is going to pan out. Even if the case fatality risk is very low, a high percentage of the population becoming infected could still result in large number of deaths.

For policy-makers, there are additional worries about whether this epidemic could be the trigger for a major recession or slump: the first major downturn since the 2008 financial crisis, at a time when major economies are not at their

strongest. Europe’s economy, for example, has grown at just 1% over a year; and the shutdown of the Italian economy only makes matters worse for this underperforming country.

This is also something that the Maltese will watch carefully, given that a large part of its migrant population is Italian, and is a major participant in business and society. To confront the looming economic devastation, the Italian government is rushing through a package of emergency measures in a decree worth €7.5 billion, which raises this year’s projected national economic deficit from 2.2% to 2.5%. This will offset the extra costs of health and civil protection, unemployment, support for businesses and banks and so on – all measures which will need approval by the European Commission.

But it is the long-term economic impact of the lockdown that is incalculable.

The OECD, which groups the planet’s 36 most advanced economies, has lowered growth forecasts for 2020, due to widespread factory and business closures. Italy only entered its 17th consecutive monthly decline in manufacturing activity in February. Similar contractions might be experienced in other EU member states.

The IMF said: “Experience suggests that about one-third of the economic losses from the disease will be direct costs: from loss of life, workplace closures, and quarantines. The remaining two-thirds will be indirect, reflecting a retrenchment in consumer confidence and business behaviour and a tightening in financial markets… global growth in 2020 will drop below last year’s level. How far it will fall, and for how long, is difficult to predict, and would depend on the epidemic, but also on the timeliness and effectiveness of our actions.”

As of yesterday, Malta joined other countries in taking stronger and wider precautions by banning large-scale events and mass gatherings: a factor that will drastically affect businesses, especially those in the leisure/food and beverage industries. These are just the few local examples that will be mirrored internationally with major sports events now being shut down, a reality that will lead to attendance drops, games being played without spectators, or cancelled events.

Ultimately, this means that Malta – along with the rest of the world – will be facing daunting challenges in the near future. Our ability to withstand them will depend, in no small measure, on how we react to the emerging crisis today.