Impact of COVID-19 on the World Economy

Coronavirus, the virus responsible for COVID-19 (Previously known as "2019 novel coronavirus") initially spread across china has now deepen its roots cross the world with global cases surpassed 1,00,000, including nearly 56,000 discharged patients and  more than 3,400 fatalities.

Global Financial Markets have been affected strongly as the virus has spread to middle east and europe. Risks have been hyped and priced aggressively across various assets clause indicating recession in the global economy. 

But here the question arises, Are the market draw-downs truly a recession ? However, The scenario for recovery of markets and growth will somewhat depend on the lasting structural impact from the unfolding crises but not completely. The truth is that, projection and indices wont help to answer this question as the forecast wont help when the virus trajectory is unknown. There is no number that credibly captures or foresees Covid-19's impact on the Global Economy. 

Now let us have a look on different aspects.

Economy and COVID-19

First of all, let us know what is a booming or increasing economy. In a layman words, we may say that an economy having more jobs and more wealth is an increasing economy. The economic growth is measured through the % change in the GDP, which is measured in a quarter or in a year. Now, As per the reports of the OECD (Organisation for Economic Cooperation and Development), World Economy could grow at its slowest rate since 2009, this year due to Coronavirus outbreak. The think tank is of the opinion that the growth will be 2.4% in 2020 which was 2.9% in November 2019. Long lasting and more intensive outbreak could have growth nearing 1.5% in 2020 as factories across the globe, are suspending the action and workers stay at home trying to contain the virus.

Financial Markets across the globe takes a hit

The investors and traders all over are worried about the impact. Big shifts in stock markets , where shares are bought and sold, can affect investments in some types of pension or individual savings accounts. The last week of February witnessed the worst performance by the major financial markets since the 2008 financial crises. The US central bank has even, slashed the interest rates in response to mounting concerns. That should, in theory, make borrowing cheaper and encourage spending to boost economy.

Travel Industry and Coronavirus 

The number of cases diagnosed around the world are increasing every day. Many countries, to contain the spread of virus, have imposed travel restrictions to various parts of the globe. Talking about the UK government it has adviced against all travel to the Hubei Province in China, from where the virus originated. It also issued special travel advice for italy, which was the first Europeon Country to report a major increase in cases. Travel indusrtry has been massively impacted with airlines cutting the flights and tourist cancelling business trips and holdings. Also, Chinese air departures to all destinations have fallen sharply.

Slow down of the factories

China makes up a third of manufactures globally, is the world largest exporter of goods, and also known as "workshop of the world". But activity and operations here are paused to contain the spread of virus. These statements are also justified by the satellite images showing pollution clear images of china amid the slowdown. NASA officials quoted that they noticed significant drop in nitrogen dioxide over the country. It can be said that it is at least partly, due to the coronavirus outbreak.
Even supply chains of big companies such as JCB and Nissan have also been affected due to the restrictions. Both of them highly depend on China's production and its 300 Million migrant workers. Jaguar Land Rover officials even said that they had flown car parts in suitcase as some factories run out of parts for vehicle.

Customers amidst the outbreak 

Fear of coronavirus outbreak means that some people are choosing to avoid activities that might expose them to the risk of infection, such as going out shopping. A fall in customer demand is being reported by the Restaurants, Car Dealerships and Shops. For example, Chinese car sales dropped by 92% during the 1st half of February. Companies have shifted online as customers stay away from showrooms.

Some positives to take away

Often in these hard times, the positives are really very hard to find. Nobody can actually look for positives when jobs are declining and lives are in danger. But biggies like Reckitt, consumer good giant has seen a boost in sales for its Dettol and Lysol products. The disinfectant is seen as providing protection against the spread of the disease, although its effectiveness has not been scientifically proven. The price of gold, which is often considered "Safe Heaven" in  times of uncertainty has also increased. Its spot price hit a seven year high of 1,682.35 US Dollars per ounce in February.



Author :
Jay Kumar Hotani