‘There Is Quite An Evident Contagion’: Korea, Italy, Iran Outbreaks Stoke New Virus Worries

As one might expect with pandemics, tracking the spread of coronavirus outside China is becoming quite a daunting task.

While there are all manner of databases and models you can access across the web, creating a static chart that’s not immediately outdated is nearly impossible.

The situation in South Korea – which we discussed at length here on Thursday – is becoming particularly worrisome. The number of cases more than doubled to 433 over the past 36 hours, Korea’s Centers for Disease Control and Prevention said.

Meanwhile, Italy now has around 50 cases, and at least five people have died in Iran, where 28 infections have been confirmed according to state television. WHO is particularly concerned about those cases, as Iran doesn’t have a discernible link to the China outbreak.

“As numbers suddenly rose in Italy, the government has scrambled to contain the new outbreak, asking some 50,000 people to stay indoors and suspending all public events – including religious ceremonies and school – in 10 small towns to the south of Milan”, The Washington Post writes, adding that “until a few days ago, Italy had seen only three confirmed infections, including a pair of Chinese tourists”.

Giulio Gallera, health chief of the northern Lombardy region, cautioned that “there is quite an evident contagion, a very strong one”.

The situation in South Korea has put the spotlight on what most media outlets are describing as an “obscure” religious sect, which is linked to around half of the country’s infections. “100 were linked to the sect while 114 were tied to an outbreak at a hospital near Daegu where a funeral for the brother of the sect’s leader was held earlier this month”, Bloomberg notes, adding that “during worship, Shincheonji members sit on the floor, elbow-to-elbow and knee-to-knee, in services that typically last one to two hours”.

Clearly, that’s conducive to the spread of an airborne pathogen – you needn’t be a virologist to come to that conclusion. Fortunately, the group’s founder, 88-year-old Lee Man-hee, is, by his own account, an immortal, which means he will survive the epidemic, no matter how bad it gets.

But for the rest of us, the spread outside of China is quite unnerving. South Korea has reportedly asked citizens to avoid all group activities and mass assemblies, in favor of congregating online, a decree which wouldn’t be a problem in the US, where the populace routinely eschews in-person interactions for the “safe” confines of the internet.

At the risk of stating the obvious, it’s starting to feel like the market may have severely underestimated the fallout from the epidemic although, to be fair, this is an inherently ambiguous situation. Viruses don’t exactly consult with the economics community before spreading.

Folks are trying to catch up, but the fact is, it’s nearly impossible to make any projections. “The containment efforts by Chinese authorities to try to curtail the spread of COVID-19 are unprecedented, and prolonged factory closures in addition to the closure of major transport linkages are a significant blight on normal manufacturing operations”, Moody’s said this week.

(Moody’s, Chinese government sources)

The ratings agency slashed its outlook for China’s full-year GDP growth to 5.2%, and that assumes the impact from the epidemic abates reasonably quickly. Some estimates from banks are considerably lower, and many downside cases are quite dire.

Here are two additional charts from those made public by Capital Economics this month which show how the containment efforts are affecting economic activity.

(Capital Economics)

And, for good measure, here’s a diagram from a separate Moody’s report which ultimately posits a “temporary” hit to global growth.


On Saturday, there were more nods to fiscal and monetary stimulus out of China, as statements released following a Politburo meeting chaired by Xi on Friday promised proactive fiscal policy, accelerated construction projects and a move by the PBoC to allow some lenders to free up more reserves.

China completed a new round of easing on Thursday, slashing both loan prime rate tenors, with the one-year cut by 10bps to match an identical cut to the medium-term lending rate and OMO rates earlier this month. RRR was cut last month, and another reduction now seems imminent.

Japanese Finance Minister Taro Aso on Saturday called the virus “a risk that could inflict a severe cost on the global economy”. He was speaking to reporters in Riyadh, where he’s attending the G20 finance ministers meeting. Aso said he hopes nations with spare fiscal capacity will utilize it to mitigate downside risks.

Of course, none of these stimulus efforts are going to matter if people are confined to their homes or otherwise frightened of engaging in economic activities, whether going out to eat, shopping or even refusing to go to work for fear of contracting a deadly respiratory disease.

None of that is to suggest COVID-19 won’t ultimately be contained, or suddenly disappear like so many other mysterious pathogens (only to turn up again years down the road), it’s simply to say that the cases in South Korea, Iran and Italy are a cautionary tale and underscore why market participants have become so hesitant about carrying risk into weekends.


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5 thoughts on “‘There Is Quite An Evident Contagion’: Korea, Italy, Iran Outbreaks Stoke New Virus Worries

  1. Random thoughts from an admitted non-expert:
    1. WHO is wonderful, but also has to be diplomatic in order to be effective. They need cooperation from China. So when WHO sees the virus in Iran, they have to act puzzled. Are we supposed to believe that the exact same virus might have developed independently in Iran? I think the highly probable answer is that there are plenty of contacts between China and Iran that are not advertised in public while the US is on a sanctions rampage. I get why the WHO has to speak that way, but have been surprised that Bloomberg and other media outlets simply repeated their statement without questioning it. And, by the way, if we want to contain the virus, the rest of the world cannot sit idly by, offering no help to Iran.
    2. For me, I’m realizing the message on growth in China has been slow to sink in. I am so accustomed to articles in the US referring to the “slowing” Chinese economy really meaning growth rates below 5%, something we could never achieve. But we are really talking about a reduction in GDP in China. Yikes! China grew in 2008. I don’t know what numbers China will report, but an actual contraction in the Chinese economy could spread more easily than the virus.
    3. Another danger is the greater reporting about morbidity. I’ve been guessing or assuming that the death rate might be lower in developed countries, and that still might be true. Early reporting seemed to suggest that most deaths were associated with other medical conditions. But there is increased reporting about otherwise healthy individuals taking a turn for the worse in the second week, and dying after receiving the best current standard of care. That might be enough to keep people in the developed economies cautious about going out.

    1. I don’t think there’s any chance China reports recession numbers unless the CCP is no longer in control (the actual truth of course might be different). And that to me is the ultimate savior for the markets if the virus spins out of control. Xi and friends are going to throw everything they can at economic growth (and the Fed will too), not necessarily for the benefit of the average Chinese worker, but to save themselves. I don’t think that means they have to throw the “kitchen sink” at the problem to save their government, but why chance it?

    2. Nice post. Random thoughts on your random thoughts: 1) obvious, once someone actually says it out loud; hat tip; 2) the hit to the Chinese economy is going to be worse than the CCP is willing to admit, and the Xi and the party won’t be able to put lipstick on that pig; the truth will out in lower profits for multinationals that rely on China-based supply chains; 3) I could totally imagine a scenario in which the media runs with a couple of stories about healthy millennials getting really sick or worse and — voila — empty subway cars in NYC. In which case you want to be long ZOOM.

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