Q&A With Michael Pettis on the Coronavirus Impact

Mish

I had this interesting Tweet conversation with Michael Pettis at China Financial Markets on the coronavirus.

Notes

  1. Lead image from NYT Coronavirus Map: Tracking the Spread of the Outbreak
  2. Johns Hopkins Live Updates

Current Confirmed Case From Live Updates

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Mish Question

Pettis Nine Tweet Reply - Emphasis Mine

  1. I'm not sure there's a whole lot I can say that is especially new, Mish. There's a lot of fear everywhere, and Beijing streets and shops are almost empty. People still buy things online – for example my students and musician friends are overdosing on games and streaming, and...
  2. ...one well-known musician told me last night that he did an online DJ set that attracted tens of thousands – but they buy very little that requires being near other people. What is worse, because factories will be closed, a lot of small business owners and workers, especially...
  3. ..at the bottom, will have sharply reduced income for the year, which of course means less consumption. It is hard to imagine that all of this won't have a significant impact on consumption growth in the first and perhaps second quarters (depending on when it starts to...
  4. ...subside). Some consumption might just be postponed, but some of it will be permanently lost, including much of what should have been spent during this very important holiday season (for example, this is the main time to release blockbuster movies, but all the theaters are...
  5. ...closed). Also if workers are unable to earn wages for a few weeks longer than expected, that’s also permanently lost consumption. The more interesting question to me is whether all this will have much impact ultimately on the 2020 growth target of "around 6%", which will...
  6. ...be formally announced in early March. I suspect it won't, at most driving it closer to 5.6% than 6.0%. If that's the case, the economic impact of the coronavirus will be to increase debt even more than expected, as Beijing accelerates later in the year to make up for the...
  7. ...decline in the first and second quarters. It had already decided in Q4 2019 to push forward any and every infrastructure project it could think of, but now it will simply have to find more projects. The point is that while the coronavirus will certainly have an adverse...
  8. ...impact on "real" economic growth, it will probably have very little impact on aggregate economic activity for the year, which is just one more reason to reject an input measure as measuring anything useful. The main place to see evidence of the coronavirus impact is in the...
  9. ...lower consumption share of GDP and the higher credit growth. Finally there are also likely to be interesting political implications, but obviously that’s not easy to write about.

To follow his insights, please see China Financial Markets

Most of what I know about trade and trade impacts I learned from Michael.

Thanks Michael!

Mike "Mish" Shedlock

Comments (29)
No. 1-9
TheLege
TheLege

You guys are whistling past the graveyard. Even if this crisis is short-lived the impact will be greater than outlined. The world is drowning in debt at precisely the time this crisis has hit. At some point global unemployment is going to ramp.

KidHorn
KidHorn

This could be a crisis in line with the 1919 influenza that killed more than 50 million and people are concerned about the economic impact? Sums up the morals of our society perfectly.

WebSurfinMurf
WebSurfinMurf

Items 6 and 7 are exactly the same fyi

lol
lol

Virus is rapidly spreading, they have to killed,shot to the brain or through the heart,that's to only way to stop them once they turn.

abend237-04
abend237-04

Hope I'm wrong, but I have this growing sense that nobody in government outside China is taking this seriously.

The public trough, here and Europe, is full of successful rent seekers now diverting over $100 Billion annually into the AGW boondoggle, yet we still don't have basic, simple tools like infrared face scanners at international airport boarding gates to determine if people boarding flights have a fever.

The Chinese government's crisis management skills are not the only problem here. I'd frankly rather take my chances with their system of meritocracy promotion in government than one producing the likes of Bernie Sanders when it comes to crisis management.

There are no votes in it, resulting in no political will to deal with it before people are falling dead in the street in numbers too big to ignore, in Wuhan this time.

Maximus_Minimus
Maximus_Minimus

"The more interesting question to me is whether all this will have much impact ultimately on the 2020 growth target of "around 6%", which will..."

I had a chuckle. The 6% is cast in stone, just like the 2% officially approved inflation. You don't allow a Yellowstone eruption disrupt the plan.

Greenmountain
Greenmountain

So what does this do to all the promised Chinese purchases promised by Trump in the new trade deal. If demand drops, all those billions in sales may not happen and farmers could be unhappy.

JimmyInMinny
JimmyInMinny

By the end of Febr, untold millions in China will be sick. The malls will be empty, factorys empty-- if this goes on into April or May, how will people and companies pay their rent and bills ? You might have a breakdown of the supply chain, hamstringing production in large industries. This could be really, really bad for China

Jackula
Jackula

I'm suspecting this will be the current cycle's black swan


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