The Corona Effect: Recession and Booming Local Ecommerce

Avatar for Martijn Hoogeveen
coronavirus effect

Monday, the news broke that the famous carnival in Venice has been cancelled because of Corona, and that a growing number of cities and municipalities in Lombardia, Nothern Italy, the economic heartland of this third largest EU economy, are in lockdown. I apped our Venice rep Stefano for a personal update:

“Morning. No carnival, I read!”

“Hey Martijn, unfortunately not :(“, answered Stefano. “Incredible… all universities, schools, churches, everything is closed.. “.

“Wow. That’s like a post-apocalyptic experience. Is everyone buying online then?”

“Weirdly enough, not all people are buying online. Yesterday, there was a huge queue at the supermarkets. I obviously buy online as ususal :)”, answered Stefano. “The prices of masks and disinfectants are very high”.

“By the way, are events (shows) still going on?”

“No, in Lombardia and Veneto all is cancelled. Never saw something similar (:|. We have to stop the infection as soon as possible and therefore all necessary measures are taken. I expect that the number of infected people will increase in this week and then after about ten days, I hope that the measures taken will block the infection completely. That is happening now. And by doing virus checks, we are discovering all Corona cases that before seemed trivial influenza.”

Stocks Plummet for Fear of Recession

The Italian stock market plummeted 5.5% on Monday, the largest drop since 2016 during a day. All over the world stock markets are dropping because of the Corona fear, now that the virus has clearly spread outside of East-Asia and got a foothold in the largest economic zone in the world. Italy and some other EU countries were already on the brink of an economic recession, and the Corona flu is projected to give at least Italy the final push into a recession, defined as two consecutive quarters of negative GDP growth. The financial markets will now closely watch, wether the virus can be effectively contained in Northern Italy, or that the epidemic will spread to more major economies with similar paralyzing effects.

Local Ecommerce Boost

As is observed in big cities like Wuhan, China, which is in a complete lockdown, the population is turning to the internet for shopping and entertainment. In other words, for ecommerce it is definitely a boost, even if there are general recession effects. At the other hand, supply from China is hurt, and manufacturers with long or complex global supply chains are vulnerable. This is now already reported by Audi, forced to slowdown its e-tron FEV production, and for computer manufacturers like Apple, who heavily depend on China for its iPhone production.

As the virus is already spreading into Taiwan, South Korean and Japan, the impact on global supply chains might only worsen. It might speed up the diversification of production, which already started because of the trade war between the US and China. But, to fully mitigate the risks of complex and vulnerable supply chains, some level of deglobalization might become the norm. Local, or regional supply chains will be the least likely affected. So, global ecommerce might not fare as well as local ecommerce.

Stagflation risk

If global supply is hit, the inflatory pressure might go up for more product categories, as is already visible with mouth caps and desinfectants in Italy. Stimulating economies that glide into a recession, while supply is impaired, is a risky policy, potentially leading to the stagflation of the 70s during the oil crisis. I’m sure that central authorities will closely monitor and balance such risks, when considering new stimulating measures.

Avatar for Martijn Hoogeveen

Founder and CEO of Icecat NV. Investor through iMerge. PhD Multimedia at Delft University of Technology. Former Professor at Open University Netherlands/Technical Sciences & Environment.

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