As the human toll of the coronavirus continues to climb, the economic impact is becoming clearer. Global supply chains for everything from cars to iPhones are under strain. People are travelling less. Trade is hurting, reducing demand for oil and shipping, and pushing down prices. In short, the global economy is being disrupted, nowhere more so than in China.
The effect has been particularly stark when it comes to trade: imports and exports account for almost two-fifths of Chinese GDP. As the image below shows, there’s been a slump in the number of vessels calling at Chinese ports over the past couple of weeks.
But trade doesn’t exist in a vacuum. It’s powered by supply and demand, and since cargoes are bought and sold weeks and months in advance, it raises the possibility that this drop is only partly due to the Coronavirus. Indeed, when searching for other events that may influence trade, we found that during the week showing the biggest drop, the Chinese celebrated their New Year. Could that be the reason?
This is where historical data can provide much-needed context to support decision making. As seen in the chart below, there is a strong seasonality effect around Chinese New Year; every year sees a similar drop in port calls, starting the day before and lasting for up to two weeks – before bouncing back to usual levels. In a way, this is the pattern-of-life for Chinese trade, and it establishes the context needed to properly evaluate the current situation – and make predictions.
As the chart above shows, 2020 saw the lowest number of port calls in China in seven years, suggesting the drop isn’t all due to seasonality. However, it also shows that port calls at the start of the year were higher than before – so how much was the actual drop?
Looking at the 10-day average leading up to three days before Chinese New Year, and a 10-day average starting three days after the celebration, we see the real impact: while in 2014-2019 the average drop was around 11-12% every year, in 2020 the drop was 30%.
This is a clear anomaly compared with previous years’ trading patterns, bringing us closer to understanding the true scope of the economic impact of the virus. With the number of infections still growing, albeit at a slower pace, the situation may get worse before it gets better.