Coronavirus: Governments panic while the UAE remains composed

Coronavirus, now called COVID-19, has infected more than 89,000 people, leading to over 3,000 deaths. As experts caution the possibility of a sustained global infection, markets around the world have already begun a severe economic contraction.

COVID-19 has not only injected fear into previously fearless international equity markets, it’s also shattered key links in the global supply chain, a hyper-efficient system that is ill-prepared for any kind of disruption. As some governments rush to stem the bleeding, certain nations like the United Arab Emirates lead by example with balanced policies that limit both economic and medical fallout.  

Asia’s gloomy economic outlook

Even as Beijing insists that the rate of new COVID-19 cases is slowing, Asia remains the epicentre for the epidemic’s cascading economic effects. To start with, international travel restrictions and tourist advisements have sharply curtailed tourism across China and the broader Indo-Pacific. In addition to paralyzing the hospitality industry across the region, the steep downturn in Asia’s tourist volume is also cleaving into the performance margins of major retailers and regional airlines.

China’s automotive, electronics, and pharmaceutical sectors have been similarly crippled by a scarcity of raw materials and a sustained downswing in labor force participation, due largely to mandatory travel restrictions and quarantines. As the Chinese government rushes to reopen high-profile industrial facilities, other manufacturing sectors like consumer goods face an unprecedented production crisis. If China can’t resuscitate its slumping factory activity, international importers and trade partners will need to contend with a range of essential and non-essential shortages, from life-saving drugs to popular Christmas toys. While dependency levels vary, many of Beijing’s neighbors—a list that includes Hong Kong, Singapore, Japan, South Korea, and Australia—rely on China’s insatiable demand for commodities and technical services to sustain their own domestic growth. Now, with demand set to dry up, many of the Indo-Pacific’s developed and developing economies may slide into recession. 

Meanwhile, in the United States, fears of a COVID-19 pandemic have thrown the world’s largest economy into chaos. Or at least that's what the media are claiming. On the surface, there’s no doubt that the U.S. economy, which recently experienced the worst week-to-week stock market decline since the 2008 financial crisis, has failed its COVID-19 stress test. However, upon closer inspection, the U.S. economy appears to be functionally healthy; it’s still performing better than key European or Asian indices, revenue generation remains largely non-reliant on China, and, despite market volatility, the U.S. dollar just climbed to a three-year high.

Is the UAE sidestepping contagion? 

Commentators have lauded the economic principles underpinning the United Arab Emirates’ COVID-19 management strategy, with the World Health Organization this week praising the country’s response and aid efforts. Interestingly, the UAE’s economy shares many similarities with the economy of Hong Kong, an early COVID-19 economic casualty. Both Hong Kong and the UAE are known as regional powerhouses in the financial services industry and both share a reputation as international hubs for air travel and gateway tourism. However, beyond these associations, comparisons between the two economies begin to break down. Hong Kong is in the midst of combatting both an economy in recession and a significant COVID-19 outbreak. In comparison, the UAE, which faces a similar cross-border epidemic in Iran, has rapidly responded to control a limited COVID-19 outbreak. The constrained scale of the outbreak is a particularly impressive feat when you consider how many people move through the UAE every year (90 million airport-only travelers and 13 million tourists).

Unlike Hong Kong, the UAE has opted to maintain a selection of carefully screened flights in and out of Beijing. This policy, which singlehandedly preserves dozens of vital East Asian business linkages, is one of several factors contributing to the surprising level of COVID-19 resilience embedded in the UAE economy. The UAE this week will also begin rolling out a pilot program in government school where teaching will be conducted via distance learning for three days, along with placing hand sanitizers in all hotels. Likewise, government departments are advised to limit face-to-face meetings and use internet resources instead. For balancing economic continuity and medical sensitivities, the UAE must be commended for its tactical COVID-19 protocols that limit domestic and regional economic fallout. Indeed, after recording 2.9 percent growth in 2019, the Emirates’ economy entered the first quarter with stable growth projections and high investor expectations.

Can we contain the global economic threat of COVID-19?

As COVID-19 continues to affect more and more countries, the central economic factors and incidental financial metrics associated with the contagion have become increasingly difficult to parametrize within existing models. However, by analyzing the asymmetrical distribution of nation-specific economic declines, we can confidently infer that coronavirus-induced economic effects are non-stochastic—that is to say, a country’s ability to constrain and cushion economic contraction is determined more by specific government responses than by randomly determined disease-market dynamics.

Unfortunately, after taking into account the disruptions in the global supply chain and the steep pullback in retail and institutional investor sentiment, further economic decline—expected to affect almost every major market, equities or otherwise, around the world—is all but guaranteed. The good news is that several governments like the UAE  have already begun taking steps to clip the threat of recession. So far, the countries showing the most economic resilience are the ones that have identified and maximized the synergy between a robust public health response and successful economic control measures. If countries can continue to roll out policies similar to the United Arab Emirates, perhaps the worst of the virus can be avoided.

Disclaimer: This is featured content. No Deccan Chronicle journalist is involved in creating this content. The Group also takes no responsibility for this content.