How the COVID-19 outbreak could affect Oregon's economy
The emergence of COVID-19 could put a damper on the expansion of the Oregon economy.
A full-blown recession could be on the horizon if the virus disrupts supply chains, keeps workers from their jobs and causes businesses to pull back investment, economists say.
In a recent forecast, state economist Josh Lehner wrote that Oregon’s economy is in good shape with historically low unemployment, low interest rates, accompanied by high business and consumer confidence. But he said the coronavirus could be the strong economy’s undoing.
He referenced research by the Brookings Institution on the economic impact of the 2002 outbreak of severe acute respiratory syndrome (better known as “SARS”) that began in Asia and spread to 26 countries. According to the Washington D.C.-based think tank, the outbreak of SARS took 1 percentage point off China’s gross domestic product, while having even less of an impact in the U.S.
China, which is where the coronavirus outbreak began, has since become the world’s second-largest economy, and the products of its factories are integrated into supply chains across the globe.
Lehner wrote that China is Oregon’s largest foreign market for exports, accounting for up to 20% to 30% of totals. China has shuttered factories and restricted travel to contain the virus. A prolonged shutdown in China would likely hurt Oregon’s export market, wrote Lehner.
“Fears over the human and economic impact could potentially reach critical mass where consumers pull back and delay spending money and employers put off investment and hiring decisions,” he wrote.
In a follow-up email, Lehner said that a downturn could mean adjustments to the state economic forecast, which could have budget implications. He said that local quarantines and public restrictions would have the biggest economic disruptions.
In the meantime, Oregon is likely to be affected by what it’s not sending overseas.
Oregon exported $4.7 billion worth of goods to China in 2018, according to the Office of the U.S. Trade Representative. The state’s largest manufacturing export is computer and electronic products, which accounted for $7.5 billion in exports. Machinery was next at $4 billion.
Robert Whelan, senior economist at consulting firm ECONorthwest, said Oregon’s largest export is semiconductors, used to manufacture circuit boards, that are exported to China, South Korea and Malaysia. Intel Corporation, a manufacturer of semiconductors and one of Oregon’s largest companies, could be particularly affected.
Whelan said manufactured products use parts from all over the world. He said that if a company in Asia, for instance, couldn’t get a component needed for a product because of the COVID-19 outbreak, he said it would delay buying semiconductors or other goods from companies in Oregon.
Agriculture is another large export commodity for Oregon. The state shipped $1.9 billion worth of agricultural goods in 2017, according to federal figures. Whelan said wheat makes up a large portion of those exports, and he’s not as concerned about a hit to Oregon farmers.
“That’s probably less affected because everyone has to eat, sick or not,” he said.
However, he said tourism is more likely to be affected and will hurt Portland, a destination for affluent Chinese. Lehner wrote in his forecast that Chinese tourists spent $261 million in Oregon in 2018.
How badly the coronavirus will affect the economy is uncertain. The stock market saw its worst week since the 2008 financial crisis. The Organization for Economic Cooperation and Development predicted that the outbreak could reduce global growth by 1.5%.
Nike, the Beaverton-based sneaker giant, has already had to close stores in China in response to the outbreak, which could cut into its profits.
But Scott DuHadway, the Cameron professor of supply chain management at Portland State University, said Oregon is not likely to see similar disruptions soon.
He said it’ll take time for disruptions in supply chains to spread. Companies that rely on manufacturing, which requires workers to show up at factories and work in close proximity, are more likely to be affected — particularly those dependent on low-cost manufacturing from China. He said these disruptions will cascade to the broader economy.
Gail Krumenauer, spokeswoman for the Oregon Employment Department, said employment data for January slated to be released this week won’t reflect any impact from the outbreak but the department is paying close attention.
Whelan said the exact economic effects of the outbreak won’t be clear until after it’s happened.
“Data and numbers are always old,” he said.