- Kondratiev explained the existence of large economic cycles by the fact that the duration of functioning of various created economic goods fluctuates.
- There will be decline in real production due to the coronavirus.
- Expect the world economy to suffer losses.
Coronavirus has become a global scare. The World Health Organization considers coronavirus “High Risk.” The emergence of an economic storm could be inevitable. Kondratiev cycles predicted economic slowdown. Kondratiev explained the existence of large economic cycles by the fact that the duration of functioning of various created economic goods fluctuates. Similarly, they require different time and different means to create them. Large cycles can be seen as disrupting and restoring the economic equilibrium of a long period. The main reason for them lies in the mechanism of accumulation, accumulation and dispersion of capital sufficient to create new elements of infrastructure.
Currently, the world is in the final phase of the 1980-2030 Kondratev cycle. The last phase of the Kondratiev cycle is usually the worst. Hence, the global economy is expected to take a dive and coronavirus could be the catalyst.
What to expect:
Decline in Real Production
There was a slow and inadequate reaction by China during the initial stage of the reported cases. The much needed quarantine imposed and the shutdown of Chinese enterprises caused China to fall to 50% of its production capacity in the month of February 2020.
Chinese half capacity production caused disruptions to companies across the globe. Hence, the multiplier effect would be greater than 1.5% of China’s non-received production growth per year. A domino effect recession is highly likely to occur. This effect will continue with the spread of the virus.
As of February 29, 2020 the first US death has been confirmed. Canada announced an additional three cases and Mexico announced a fourth case. It is plausible to expect the world economy will suffer losses. The scenario of quick coronavirus containment is not possible at this time, due to how it has spread already internationally. The best outcome for containment would be by Summer 2020.
Stock Market panic
This is one of the most important vectors. A prime example is the fall of the Dow Jones, East Asian and European markets. A serious price fall of large corporations can lead to dire consequences. We’ve seen a recent pattern of high profile resignations within the leadership of conglomerates. If the effects of coronavirus lead to bank or insurance companies collapses the ramifications could be severe. Especially with the European Union economy struggling and Brexit. The shadow of world economic collapse has fueled fears. A myriad of global corporations have also issued a travel advisory to their employees to Asia and Europe. The business losses will continue.
Falling commodity prices
The decline in production naturally causes significant consequences in terms of producer interest in raw materials. Oil demand is decreasing due to falling production, in turn leading to price drops. This can have severe consequences on locations where economic portfolios are not diversified and solely depend on oil, such as the nations of the UAE, Qatar, Kuwait, Oman. Saudi Arabia will take a large hit on their economy, which has already been struggling. Iran and Venezuela will also suffer. Since the majority of Venezuelan oil is controlled by Russia via proxy, it will also impact the Russian economy, which already faces difficulties due to sanctions. US conglomerates will also have to process the negative impacts.
China will face economic relations disruptions
Product supplies have been blocked. China’s One Belt, One Road Initiative will take a direct hit and indirectly relations with Russia. The BRICS nations will experience disruptions.