A world off balance | thearticle

Coronavirus has now spread, from the food markets of Wuhan to the stock markets of the world. Late on Monday afternoon, financial markets around the world absorbed the news that the virus

had not been contained and that, in the words of the World Health Organisation, the world faced a “pandemic”. The FTSE100 fell 3.4 per cent, and exchanges in Amsterdam, Paris, Frankfurt and

in the US were all down between 3-4 per cent. Markets go up, markets go down — it’s tempting to read too much into these financial tealeaves. But something about this one feels different.

These financial moves were in response to a real worry about the spread of coronavirus and our ability to contain it. These ructions serve as a reminder that the global economy, though in

appearance made up of huge corporate wealth and power, is in fact a very delicate series of closely linked relationships. The global technology sector, for example, though rooted in Silicon

Valley, is deeply reliant on its relationship with China, which produces huge numbers of processors and other components. It is also the place where large amounts of US technologies,

especially Apple products, are assembled. The threat posed by the coronavirus to these trans-Pacific working arrangements is severe. Shares in Alphabet, Google’s parent company, were off by

3.5 per cent yesterday, Apple was down a similar amount, as were shares in Facebook, Microsoft and Amazon. Even these colossal organisations cannot protect themselves from the virus’s

spread. It’s impossible for a corporation to cut itself off from the global economy. No matter how big and powerful, perfect insulation is impossible. The openness of the large technology

companies and their willingness to develop transnational business models has been a central part of their success — insulation would not only have been impossible, it would have held them

back. What goes for the tech giants goes for nations too. Their economic prospects rise and fall together. The screens covered in red numbers are a reminder that the global economy is not

only interlinked but perched haphazardly at the top of an increasingly steep-looking downslope. Various technical signals, including the inversion of the yield-curve, have been suggesting

for a while now that a recession is close at hand for the global economy. This will give the new Chancellor, Rishi Sunak, pause for thought. He will deliver his first Budget on March 11. It

will be a fiscal prospectus from a government that has promised to “level up” the parts of Britain that have fallen behind the rest of the country. The expectation is that the government

will open up the taps and spend more money, especially in the north and other deprived areas. Sunak was drafted into the Treasury to replace Sajid Javid specifically because Javid wouldn’t

allow his department to become an outpost of No.10. If Cummings and Johnson shape the Budget in line with their campaign promises, then it could well prove fiscally generous for the north

and other regions. Sunak himself represents a Yorkshire constituency. The question is how this will go down with the Conservative Party’s “sound money” base, who instinctively dislike

government spending, but dislike it even more when there is the possibility of a recession in the offing. It could very well be that the traditional Conservative instinct wins out — that the

Budget is not so generous after all. Recent data has shown that inflation jumped to a six-month high last month, up from 1.3 per cent, to 1.8 per cent. This was put down to the increased

price of fuel, an explanation that serves once again to remind us of how interlinked the British economy is with factors that are out of its control. Inflation, an uncertain economic

environment, wavering business confidence — these are beginning to feel like traditional Tory belt-tightening conditions. The debate about Brexit and Britain’s place in the world has been

dominated by the idea of Britain squaring up to the EU and talking tough over trade and security. Days like yesterday reveal how wrongheaded this is. Britain is part of a global economic

system that will throw out all kinds of challenges to which the government must respond. And that really is the problem. Johnson and his group are set upon a very singular goal, which they

plan to achieve by the end of the year, even if it means —as the Irish have found out — threatening to go back on agreements already in place with foreign governments. But a country can’t

simply announce to the world that it cannot be trusted, especially when it wants to forge new economic arrangements with new trading partners. Britain will roll on the waves of the global

economy, just like everyone else. The government has its narrow area of focus, which proved so effective in campaigning for office. But that won’t stop events from intervening and from

knocking Johnson, Britain — and the world — off balance.