The impact of the current pandemic on the world’s economy and markets will be greater if the kind of mass isolation measures we are seeing in China and Italy are rolled out worldwide. But it was the saturation of the Italian healthcare system, and crucially the shortage of intensive care beds, which led the Italian authorities to urgently impose a general quarantine of the population. China had run up against the same problem. Its response was to urgently build fifteen hospitals and, while awaiting the arrival of equipment, totally isolate the populations in the epidemic zone.
Figures from the magazine Opinion (1) , corroborated by other sources (see (2) and (3)), suggest Italy has 5,000 intensive therapy beds for 61 million inhabitants, i.e. 8.2 per 100,000 pop. In France, it is suggested the system has 11.6 per 100,000. The ratio is thought to be 9.7 in Spain and 29.2 for Germany.
European hospital systems therefore seem to be broadly similarly structured, except for Germany’s which is better equipped but has an older population. It is therefore highly likely that what happened in Italy, i.e. the overwhelming of intensive care facilities, will become a European-scale problem. Governments will then have no choice but to also quarantine large swathes of their people to try and slow the pace of the epidemic's growth, with all the economic consequences you can imagine.
In the USA, doctors are also warning of a likely saturation of IC units (see (4)) and it is hard to see how the American authorities could get by without drastic isolation measures to try and stem the spread of the virus. Those who have long been forecasting a slowdown of the American economy could this time be proved right.
Equity markets are unlikely to welcome these announcements, even if central banks wade in with monetary support. It is therefore unquestionably too soon to start taking risk back on.
Article completed on 11 March 2020 by Florent Delorme, macro analyst at M&G Investments.
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