IEEJ：March 2020○ｃIEEJ 2020
Special Bulletin
A Japanese Perspective on the International Energy Landscape (472)March 16, 2020

“People”, “Goods”, “Money” and Economic Crisis
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
There are questions that are ignored in a normal economic situation but inevitably attract
much attention in an abnormal or critical economic situation. They include what normal or smootheconomic activities are and why an economic slump or crisis has come. In a bid to tide over a slump
and overcome a crisis, we try to find out answers to the questions.
The world is now exposed to a very serious economic deceleration risk. The risk isattributable directly to the continuing expansion of new coronavirus infection. The infection originatedfrom China’s Wuhan late last year and has expanded throughout the world. The World HealthOrganization has declared the infection expansion as a pandemic, which means a global infection. By
March 15, the new coronavirus infected 154,000 people and killed 5,735 in the world, according tothe WHO. Although China has been hardest hit, with the number of infected people reaching 81,000
including 3,204 who died, the infection has rapidly and globally expanded and been confirmed in 143countries. The WHO said that Europe was becoming the center of the pandemic. In Europe, Italyfeatures the largest number of infected people above 20,000. The infection has rapidly expanded inSpain, France and Germany as well. In the United States, more than 1,600 people have been confirmed
to be infected with the new coronavirus. As a result, many countries have declared an emergency torestrict citizens’ actions and various economic activities to prevent the pandemic from expanding
further.
The new coronavirus pandemic has led the global economy to run into extremely
unfavorable conditions, with a serious economic deceleration risk coming true. On March 2, theOrganization for Economic Cooperation and Development revised a 2020 global economic growth
projection down by 0.5 percentage points to 2.4%. Since then, however, the situation has worsenedeven further, indicating that the OECD could announce another downward revision. Stock markets
that mirror the future course of the global economy have spiraled down. The Dow Jones industrial
average on the New York stock exchange posted a steep fall of 8,351 points or 28% from a record highof 29,551 on February 12 to 21,201 on March 12. In the March 9-13 week, three days saw daily falls
above 1,000 points, including a record single-day decline of 2,353 on March 12. Major countries wereforced to announce monetary easing and other emergency economic measures, prompting stock
markets to stage a sharp rally. Stock markets have thus fluctuated wildly.
In such critical situation, the flow of “people”, “goods” and “money” that attracts little
attention in a normal situation has been highlighted as significant. The three elements amount to blood
supporting a normal economy. When problems emerge with any of these elements, an economic slump
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IEEJ：March 2020○ｃIEEJ 2020
comes. Depending the seriousness of problems, the slump may develop into a crisis. When the flowof the three elements stagnates, the economy fails to work. When the flow stops, the economy plunges
into a crisis.
Among past economic crises or slumps, the 2008 global financial crisis came as a serious
slump emerged in the flow of “money” in the United States. The failure of U.S. investment bank
Lehman Brothers shook the global financial system, hitting the global real economy hard. Then,
countries in the world attempted to overcome the crisis by implementing comprehensive economicmeasures, including interest rate cuts and other monetary easing actions to counter the “money”
problem and stabilize the financial system in response to credit contraction. The world took much timeand costs to overcome the crisis that was very serious.
The U.S.-China trade war, which may seem to be difficult to describe as a crisis, had beenviewed as one of the largest global economic risk factors until recently. The United States and China
had been feared to escalate their reciprocal tariff hikes, which could affect global trade to risk global
economic slowdown. As a matter of course, it is pointed out that the U.S.-China trade war involves abilateral battle for technological supremacy and other background factors as well as the tariff issue.
As far as tariffs and trade are concerned, however, the stagnation of the flow of “goods” can be
expected to cause an economic slump. Problems regarding “goods” had been positioned to spill overto the global economy. Therefore, the two countries have chosen to stop reciprocal tariff hikes andgradually normalize tariffs and trade through comprehensive trade negotiations.
In contrast to the above two cases, the serious global economic risk regarding the expanding
new coronavirus pandemic has apparently emerged from the serious stagnation of the flow of “people”and “goods”. To protect public health and safety, governments have restricted the movement of people
and taken immigration control enhancement measures including entry denial, affecting the normal
domestic or international flow of “people”. As top priority is given to preventing the infection
expansion, with people’s movement restricted, it is difficult for manufacturers to operate their plants,
causing bottlenecks in international supply chains or the stagnation of the flow of “goods”. In the faceof the direct risk of infectious diseases for human health, the real economy has quickly suffered losses,
leading to “money” or financial problems.
In response, governments offered comprehensive economic stimulus measures includinginterest rate cuts and other monetary easing actions as mentioned above. They are designed to support
the flow of “money” to stimulate the economy. As far as the problem essentially regards “people” and“goods”, however, effective solutions may be the prevention of the pandemic expansion and otherstabilization measures. As a matter of course, these measures may include the development of effective
treatments and a vaccine. However, they may take some time to produce effects, exerting a greatburden on the global economy and a great impact on international energy markets. Energy demand
could decline sharply due to the stagnation of the flow of “people” and “goods” or the real economy’sdeterioration.
Contact: report@tky.ieej.or.jp
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