Contagion can take various forms. As a biological phenomenon, it relates to a disease, such as a virus, and its spreading. As a social phenomenon, it relates to infectious emotions and behaviors. When both are mixed, the circumstances become explosive.
From an epidemiological perspective, the infection or contagion rate represents one of the main uncertainties of the new Coronavirus (2019-nCoV or Novel Coronavirus), alongside its incubation period and fatality rate. Without an informed view on these parameters, there is no clear path to assessing the impact on human lives and, as a derivative, on macroeconomic and market conditions. This assessment is further complicated by emotional and behavioral parameters. First, fear may drive individuals to alter their spending patterns as they stay home. Second, that same fear may spread like a disease itself through social media.
Social contagion can be defined as ‘the spread of affect or behavior from one crowd participant to another; one person serves at the stimulus for the actions of another’. It has been observed across number of dimensions: politics (e.g. populism), rule breaking (neighborhood crime, corporate compliance), mental health (eating disorders, self-harm), consumer preferences (fashion), corporate culture (negativity) and investor sentiment (sector hype or panic selling). Gustave Le Bon, an eminent scientist, makes a direct analogy with biology in his 19th century book entitled ‘The Crowd: A Study of the Psychological Mind’: ‘Ideas, sentiments, emotions, and beliefs possess in crowds a contagious power as intense of that of microbes’. In one of its latest great song called ‘Thought Contagion’, the English rock band ‘Muse’ laments the viral spread of misinformation in its typically dark fashion, with a similar reference to a biological threat: ‘You’ve been bitten by a true believer/ You’re been bitten by someone who is hungrier than you/ You’ve been bitten by someone’s false beliefs.’ It is not surprising that epidemiological models are used to analyze social contagion.
Both biological and social contagion phenomena are challenging to model on their own. When biological contagion is being compounded by social contagion as in the case of the Novel Coronavirus, anticipating the economic implications becomes an impossible task. Faced with this challenge, could SARS represent a relevant precedent? Only to a limited extent: Today, China’s global economic footprint is significantly larger than in the early noughties (2x-3x depending upon the parameters), its GDP growth is much weaker, its fiscal and monetary policy toolkit is more constrained since already extensively in use and equity valuation levels are richer whilst the global supply chains are much more integrated with China. Furthermore, the social media which contribute to spreading fear through sensational news are much more developed than 17 years ago. As a mitigating factor, the ability to order goods home may soften the consumer spending blow in China. Overall, these observations suggest that the negative impact from the current Coronavirus on the economy and the markets is likely to be larger than SARS’.
There are two sources of comfort at this stage: the number of daily new cases is going down and the outbreak may not reach the World Health Organization level of a pandemic, which would save the world from further anxiety. There are still early days, though. Since 2019-nCoV has spread much more rapidly than SARS, the outbreak could be of much longer duration and it could also take longer to eradicate. The Coronavirus will prove disruptive to supply chains this quarter and next. 2020 was expected to be back-end loaded from an economic growth perspective. 2019-nCoV will accentuate this cyclical pattern.
Remarkably, whilst the social contagion effect may amplify the effect from biological contagion in the short term, it is also the social contagion effect which will stimulate the defensive behaviors that will eventually tame the biological contagion. The consequences from the Novel Coronavirus will be tragic in terms of human cost, yet contained from a global economic perspective.
Paul Marsden, ‘Memetics & Social Contagion : Two Sides of the Same Coin ?’, The Journal of Memetics, 1998
R Dornbush et al, ‘Contagion: How it spreads and How it can be stopped’, May 2000