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From bad to worse?

12 February 2020

Last week I published a column in which I suggested that the outbreak of Coronavirus in China could have very far-reaching effects on the global economy.

Given that we are now so reliant on products manufactured in China it seemed only natural that if the entire nation went into lock-down, the supply of those products would dry up -- leaving distributors and retailers around the world with nothing to sell.

Well unsurprisingly, that appears to be exactly what's happening. In fact it's a whole lot worse than I expected because the number of industries and jobs affected is much larger than even I had anticipated.

For example, here in the South Waikato we have people sitting on their bums twiddling their thumbs because log exports to China have halted due to the lack of unloading going on at the destination ports.

Other Kiwi exporters who regularly send stuff to China are also becoming affected by the backlogs forming in Chinese ports. I hadn't anticipated this effect at all.

Of course those companies who import product from China for distribution and/or retail are not in too much trouble yet, mainly because they've been drawing down on stock held locally. Once that stock is depleted however, shortages will start and retailers shelves will become bare.

Perhaps the most immediately affected will by the growing number of small entrepreneurs who have made a business out of drop-shipping product from China. In fact, these guys could be hurting really badly very soon.

Unless they pull down their virtual stores and auction listings, they'll be taking orders for products that may not be delivered for many months (until the China lock-down is over and backlogs are addressed). I can't imagine that someone placing an order with these dropshippers will be too impressed when, many weeks later, their promised item has still not arrived. Such things can do significant damage to a company's reputation and impose a massive financial hit -- especially if the drop-shipper has already remitted the funds to the Chinese supplier, only to find themselves having to refund the customer.

Then there's the tourism industry...

If this virus really starts to spread, I doubt that *anyone* will want to spend 12 hours or longer stuck in an aircraft with hundreds of others, any one of which may be shedding a viral load without even being aware of it. This could really kill NZ's tourism trade for quite some time.

So far we've seen only a small number of Kiwis stood down from their jobs but, if things progress at a pandemic-rate, there could be a lot of NZers who will be out of a job for the forseeable future.

Of course NZ will not be alone... just about every developed nation on the face of the planet will be experiencing similar problems as a result of the China lockdown.

Could this trigger another financial meltdown and gobal recession?

I don't even want to think about that.

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