Coronavirus

Pete Kelly, Managing Director

26 February 2020

Coronavirus outbreak – one possibility among many

One feature of the coronavirus outbreak, which is already broadening beyond China’s borders, is that it presents a wide range of plausible scenarios. With so many unknowns about the development of the outbreak(s), it is hard to assess which outcome is most likely. But here is one scenario that is growing in probability …

“Timing and location sometimes follow a logical sequence, for instance sequentially passing through neighbouring countries, but at other times it appears almost random.”

Outbreaks of the virus continue to take place globally throughout 2020, a function of the virus’s relatively high rate of transmission, even as strong control measures in China bring the outbreak mostly under control there. Timing and location sometimes follow a logical sequence, for instance sequentially passing through neighbouring countries, but at other times it appears almost random. Strong controls are implemented in most cases and are largely effective at stopping runaway outbreaks and by the end of the year tens of countries would have suffered from events like these. COVID-19 will be a permanent fixture in the news media. And yet the total loss of life, always the most important consideration, is a fraction of that from annual flu infections.

“there would be a continuous significant economic cost to containment measures as locations are quarantined, travel disrupted, economic activity curtailed (sometimes simply lost), industrial production halted, supply chains disrupted, and confidence undermined.”

This seems relatively innocuous, at least in comparison with some of the scarier scenarios being discussed over recent weeks. But there would be a continuous significant economic cost to containment measures as locations are quarantined, travel disrupted, economic activity curtailed (sometimes simply lost), industrial production halted, supply chains disrupted, and confidence undermined. This year’s anticipated reduction in global GDP growth would take a further hit. Add in a possible consumer recession in, and widely around, affected outbreak locations, and the effects could be quite damaging in markets for expensive durable goods such as cars.

This is not our core scenario, but it does appear to be a reasonable assumption to switch to, if things get worse. What would the global losses to the volume of vehicles produced and sold be? A 3-4 million-unit drop in Light Vehicle numbers, from last year’s (approximate) 90 million units, might not be unrealistic.