The Wuhan Coronavirus: headwinds for the Israeli economy

Magen David Adom Ambulance

Described at first as a “SARS-like” virus, the Wuhan coronavirus has since grown into its own menace. Demonstrably more contagious than SARS, the virus has already spread to more than 40,000 people and reached 24 countries, despite worldwide efforts to contain it. While the virus appears far less deadly than SARS, exactly how much less deadly remains unclear.

“From the medical literature, I can say that it seems the virus is not as bad as we think,” said Dr. Arnon Afek, former deputy head of the Health Ministry, in an article from Israel Hayom. Dr. Arnon goes on to explain that there are thousands more cases that are likely much lighter, and remain unreported, driving the mortality of the virus down significantly relative to what is currently being reported by the Chinese government.

Even if Dr. Arnon proves to be right, the virus seems intent on making its mark. With the death toll now over 1,000, China has locked down over 50 million people in dozens of cities an effort to curb the spread of the virus, although it has yet to be seen if such measures are any more than exercises in futility.

At the very least, the aggressive response of governments worldwide appears to have calmed international markets, with stocks bouncing back in the second week of February 2020 despite the doom and gloom portrayed by most media. The stock market’s seemingly lackadaisical response to potential worldwide epidemic may, counterintuitively, be partially driven by this same increasingly sensationalized media, with the general public seeing it as more spectacle than reality.

Still, some analysts believe that the market’s sluggish response does not accurately reflect the potential ramifications of the coronavirus’s rapid spread.

“We don’t know how long this episode is going to last, so without knowing that it is difficult to say how deep the impact will be,” said Gil Bufman in an interview with The Times of Israel. Gil is the chief economist at Bank Leumi Le-Israel Ltd., and one of Israel’s most outspoken financial analysts. Gil was quick to point out that although China accounts for only 3.5% of Israel’s tourist arrivals, a more substantial impact would be possible if people stop traveling for fear of contracting the virus: “That could be damaging for the Israeli tourism sector and the hotel sector in the first quarter of the year, assuming that things do end within one quarter as they did in 2003 with the SARS epidemic.”

Another impact Gil points out is the construction industry. With a lot of construction labor outsourced in Israel to Chinese workers, the current quarantine could affect projects all over Israel, even if the virus is able to be contained. “Any sector importing or dependent on imports from China could be affected,” said Bufman, indicating that if the virus isn’t contained “we may see shortages of supplies including finished goods and raw materials.” These shortages, he warns, could have a broader impact on Israeli growth.

It would seem, at least according to Bufman, that there are some unavoidable economic consequences to the current situation. Whether such consequences are already priced into the Israeli markets is an entirely different debate. Regardless, with the WHO declaring the Wuhan coronavirus a global health emergency, and most countries actively quarantining travelers, we can only hope that the main consequence remains economic, and that the human toll is quickly stopped.