- On 17/03/2020
- business in russia, Corona virus, COVID-19, export to russia, russian market
The outbreak of the Asian virus overnight has become the main news topic in the world. Many states could not distance themselves from this problem. Since March 11, WHO has declared the coronavirus a pandemic, which cannot but affect the global economic situation. Experts are sounding the alarm, and forecasts are not optimistic. Let’s try to figure it out.
There is no doubt that we are now observing a socio-economic phenomenon that has already significantly affected the commodity and stock markets of the world’s leading economies. Bloomberg estimates the potential damage to the global economy at $ 2.7 trillion. Experts from the Organization for Economic Co-operation and Development, under a scenario of global spread of the virus, the global economic growth may be halved, falling by 1.4-1.5%. Bank of America analysts warn that 2020 could be the worst for the global economy since 2009. According to their forecast, due to the slowdown in China’s economic growth, global economic growth rates risk falling to 2.8%. Are the forecasts of analysts of the leading economies of the world so terrible?
First, pay attention to the fact that the epidemic erupted at a time when global markets were ready for a recession. It can be assumed that by the beginning of 2020, the global economy and stock markets were already on the verge of a strong recession. A coronavirus outbreak made this trend visible, becoming a trigger. The beginning of the economic recession this year could be explained by the consequences of trade wars between Great Britain and the EU, which ended with the withdrawal of the first from the European Union, as well as the threat of a large-scale military clash between the United States and Iran. Now few people remember this, and this “option”, by the way, could lead to obvious negative consequences. However, as often happens, it all ended before it started. The key indices of the US stock exchange and the Russian Moscow Mercantile Exchange were able to update historical highs. The United States turned out to be from a large-scale military operation against the Islamic Republic, which did not save oil quotes from the medium-term fall, which continued to fall due to the coronavirus.
Let’s try to figure out what’s in China. It is no secret that present-day China is a World Factory, whose problems echo around the world. We will not panic. The GDP growth rate of the Chinese economy has been declining since 2010. The previous wave of growth occurred in the early 2000s. Just after overcoming the Asian crisis of 1997-1998. These facts quite accurately illustrate the concept of ten-year cycles. To put it simply, the coronavirus epidemic overlapped in time at the end of a ten-year cycle. In a broad sense, we are on the verge of a recession in world economic growth, the processes of which can last up to two years.
It is known that at the beginning of March, the index of business activity in the manufacturing sector of the Chinese economy dropped sharply to 40 points against 51 points in February this year. The same situation is observed in retail sales in neighbouring Hong Kong, with a monthly decline of 21.4%.
An interesting coincidence was the Chinese New Year, the celebration of which coincided with the epidemic of coronavirus. Traditionally, during this period there are many-day vacations and festive events due to which production is suspended. This time, after the holiday, production simply was not resumed. As a result, the Chinese media reported on the cancellation of many commodity transactions: the supply of liquefied natural gas and industrial metals.
These facts reveal not only a halt to the production of cars, household appliances and microelectronics but also show the vulnerability of the entire production chain of enterprises around the world working on Chinese components. It is clear that due to the suspension of the “world factory”, we cannot avoid a sharp decline in production. It is hoped that China will be able to resume production in the near future. Undoubtedly, in the future, coronavirus will affect the image and structure of the global economy.
And what about Russia?
At the moment, trade between Russia and China due to the coronavirus has declined significantly. If the situation does not improve dramatically, then the Russian economy risks serious losses due to a decrease in energy demand, a drop in oil prices, which is already observed. An important role is played by the disruption of the production and logistics chains with China, which affects not only the Russian economy. However, the biggest problem for Russia is not demand and energy prices, but the tourist flow from China, which has a significant impact on retail consumption.
Many experts in Russia view coronavirus as an excuse for the lack of growth, which requires increasing domestic consumer demand.
Why is quarantine not introduced in Russia?
On March 11, WHO recognized coronavirus a pandemic. All new countries are announcing quarantine measures both within borders and restricting transport connections with neighbours. So, in the United States for 30 days stopped entry from Europe. Earlier, entry for foreigners was completely closed by Italy, Israel, India. Security measures are also being taken in Russia: on March 11, air traffic with Italy, Spain, France and Germany was limited. However, Russia is not in a hurry to introduce quarantine. Let’s try to figure out why:
The country has approved the “National Plan for the Prevention of the Importation and Distribution of a New Coronavirus Infection in the Russian Federation”, which provides for various algorithms of action depending on the situation. That is, at every step, there is an algorithm of actions approved by the Chairman of the Government, and regional plans have been adopted on its basis today. We do not yet have the spread of new coronavirus infection. So far, these are isolated cases that allow us not to move on to the next stage of the implementation of the national plan. While we are reacting, how would we react in case it was ordinary flu?
This plan has not been fully made publicly available, and what steps the country’s leadership has envisaged can only be guessed from the official reports of the Rospotrebnadzor. On March 11, the stages of the National Plan provide for control of foreign citizens and tourists who have returned from travel.
Here is what Rospotrebnadzor tells us:
“At all checkpoints across the state border of the Russian Federation, reinforced double control of persons arriving from disadvantaged regions is carried out using stationary and portable thermal imaging equipment. As of March 10, 2020, 387,807 arrivals from the People’s Republic of China (PRC) were examined, of which 135 people with signs of infectious diseases were identified. 24 891 people arrived from the Italian Republic were examined, 32 were identified; 10 713 were inspected from the Republic of South Korea, 11 people were identified; 3,321 people from the Islamic Republic of Iran were examined, four were identified. In all cases, a full range of measures has been taken to prevent complications of the epidemiological situation. ”
According to the words of Tatyana Golikova, each region of the Russian Federation is developing its own plan to combat coronavirus on the basis of the National, respectively, the sequence of actions of governments and services will be approximately the same everywhere – with a difference only in scale. Measures to combat COVID-19, based on the plan of the Moscow government, are three levels:
- Level “A” is the simplest, consisting only of preventive measures. – Measurement of temperature for all passengers on international (interregional in cases with other regions) flights and collection of tests for coronavirus from those who have it increased; Daily temperature measurement in kindergartens and schools; Remote thermometry at some metro stations (in crowded places); Cancellation of international sports, cultural, scientific events; Opening of inpatient facilities in hospitals; Maintaining a strategic supply of food, medicine and personal protective equipment.
- Level “B”, administered in subjects when the first infected person is detected, enhances measures to combat the virus. Identification of all those in contact with the patient and his relatives; 14-day home quarantine for relatives and neighbours of the patient; Disinfection of all places visited by the patient or his family members, and quarantined apartments; Regular disinfection of public transport, taxis, train stations, airports, catering establishments and shopping centres; Closing of schools, museums, cinemas, libraries, shopping centres, markets, parks, stadiums, sports grounds; The ban on holding any public events.
- Emergency mode – is introduced if previous measures were not enough. The closure of all city enterprises, except emergency services and those responsible for life support; Termination of public transport; The ban on entry and exit, even by personal transport; Curfew and street patrolling.
In the most negative scenario of the development of the epidemic, it seems that the emergency mode can spread to the entire territory of the Russian Federation. However, so far, as one can judge from official news, in the regions of Russia the situation does not go further than level “B” and, according to the plan for combating Covid-19, the quarantine will most likely not be introduced.
In Russia, all mass events for April are now on halt, but still, no quarantine was introduced. Unlike in Europe, shops are open and people work from the offices. We recommend our partners to use Russia as a market from where they still get sales. And with the situation with ruble rate it a very good time to take a step into it and strengthen positions.
The Russian government did really well not allowing the pandemic spread across the country. So it’s a really good time to invest and get prepared for the Autumn trade shows.
Yet there are no trade shows right now, we believe the situation is fully under the control of the government, and for Russia, it is important not to slow down the economy. So it’s your chance.