Markets were still reeling yesterday following the turmoil on Monday due to fears over coronavirus, and we are not out of the woods, either in terms of the health crisis or as investors.
No one, not even the world’s leading epidemiologists, knows how this is going to unravel.
What we do know is that coronavirus threatens the globalisation on which modern economies like the UK are predicated.
Outbreak: Chinese medics work in a hospital in Wuhan, the town at the centre of the Covid-19 coronavirus outbreak
We take for granted that we live in a world where people, capital and goods can travel freely, though because of the inequalities and social tensions globalisation has created, it has come under serious challenge.
Brexit can be seen as an assertion of national identity and self-determination by voters who see themselves as British first and global citizens a distant second.
President Trump’s trade war with China and the protectionist thinking behind it represent a similar backlash.
As the French finance minister Bruno Le Maire says, coronavirus is a ‘game-changer’ for globalisation.
Never mind Huawei, it has put a focus on our reliance on China not only for car parts but also for even more important supplies such as the ingredients in medicines. Monsieur Le Maire has a point.
China accounts for a third of global trade, or around ten times more than at the time of Sars.
The virus has highlighted the dependence of many firms on long, complicated supply chains.
Factory closures in China will hit companies in the UK, as will the closure of borders or the imposition of checks. In the longer term, it’s possible that this, along with environmental concerns, will prompt executives to simplify supply chains.
In the short run there is likely to be severe disruption and there is little the Bank of England can do to alleviate it, because cutting interest rates and the usual measures have no effect on supply problems.
Economic damage is already being done. The Italian towns on lockdown are in the most productive northern regions and shutting them down, even temporarily, could tip the struggling economy into recession.
That in turn, will hit the eurozone. And there is a noticeable lack of information on coronavirus in Africa, where China has invested heavily. Hold tight.
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