COVID-19: Conqueror of The Global Economy
Written by Yashvardhan Kandoi and Nilesh Jain
“COVID-19 will reshape our world. We don’t yet know when the crisis will end. But we can be sure that by the time it does, the world will look very different.” — Josep Borrell
The Coronavirus outbreak that originated in China has now affected over 0.7 Million people and killed 30,000+ people over the globe. What started as a mild respiratory virus has brought entire countries and economies on their knees. It has now spread to over 170 countries and has been declared a global pandemic.
While the virus has had a massive impact on everything our world revolves around, a few sectors have been affected the most.
STOCK MARKETS
These are abnormal and turbulent times in the capital markets. The economic threats of the coronavirus have thrown global markets into disarray.
The market has reacted with large drops, triggering a market-wide circuit breaker four times in March in the U.S.
The global stock market is perhaps the most complex social construct created by humankind. Key global market indices reached their all-time highs in February, and even the Sensex-30 & Nifty-50 indices which had hit their peak in January continued to stay around their all-time high levels.
It wasn’t until the number of coronavirus cases started spiraling upwards in countries like the US, Spain, France, and the UK that the threat became too real for the markets to continue ignoring. And with it, came the real possibility of global economies entering a recession, even a depression some argued.
Stock markets in Russia (36%), Brazil (36%), France (30.35%), UK (28.12%), Sensex (19.51%) and Nifty (19.83%) have fallen drastically from January 31 to March 12. Sensex fell from a peak of 42,000 points on January 17th to below 30,000 on 31st March.
PHARMACEUTICAL INDUSTRY
The demand for masks and sanitizers is exceptionally high. A basic surgical mask that is priced at ₹10 each is being sold for ₹40, while some N-95 masks, originally priced ₹150, are being sold at up to ₹500.
Drug discovery and manufacturing has traditionally been a global effort with China and India, establishing themselves as the main players in the global pharmaceutical supply chain. Since the surge of coronavirus cases in Wuhan, the pharmaceutical industry became worried that the decreased Chinese production capabilities would result in drug shortages.
With several countries banning the export of drugs to protect from domestic shortages, there is a concern over the availability of medicines.
On the other hand, there are several companies involved in developing vaccines for the virus, and the company to come out with one will benefit immensely. The stocks of a few Pharma companies have also gained in recent weeks.
ENTERTAINMENT INDUSTRY
With theaters, malls, and places of public gathering under lockdown in most parts of the world, the entertainment industry has been hit pretty hard. Shootings, interviews, and promotional material have all come to a halt.
All sports events, including major football leagues, NBA, IPL, etc. have been postponed or called off. The Olympics have been postponed to 2021. These industries are where the big bucks are, and various people involved in the process have been affected.
Many players have given away portions of their wages to help their teams deal with the ongoing financial crisis. Several sports teams and film studios have ensured that their daily wage workers are not affected, and have provided them with necessities and wages.
Streaming services like Netflix and Amazon Prime have seen an initial boom in viewership as a lot of people are turning to them for entertainment during the lockdown. Amazon has also brought out a catalog for free to build a wider customer base. Several other companies are providing a range of offers to attract potential viewers.
However, streaming services like Hotstar rely heavily on live streams of events, and Netflix’s fundamental business model involved churning out new content every week.
Can these streaming services hold on to their customers if they aren’t able to provide new content every week?
With the economic slowdown, people could also opt-out from paying for streaming services, and this could hurt the industry in the long run.
The Coronavirus is bound to have a similar effect on streaming websites, and since the virus has affected the entire globe, the increase in server traffic will be significantly more than in the graphs above.
EMPLOYMENT
Nearly 80 million jobs in the US economy are at high or moderate risk today. That’s more than half of the 153 million jobs in the economy overall.
Of those 80 million jobs, it is estimated that 27 million are at high risk due to the virus, primarily in transportation and travel, leisure and hospitality, and oil drilling.
The other 52 million jobs are judged to face moderate risk. They are in areas such as retail, manufacturing, construction, and education.
Experts warned of a catastrophic unemployment crisis after the labor department announced jobless claims filed by individuals seeking unemployment benefits rose by more than 3 million.
Several major companies, like Air Canada and Mariott, have announced plans to layoff a large number of employees. Workers in a handful of sectors such as IT, health care, telecom, e-commerce, and food retail are best placed to keep their jobs.
TOURISM
Tourism contributes to about 10% of the global economy. Southeast Asia, North America, and Italy are some of the most popular tourist destinations, and with these regions being profoundly affected by the virus, the tourism industry has been thrown into disorder.
The World Travel and Tourism Council (WTTC) has warned the COVID-19 pandemic could cut 50 million jobs worldwide in the travel and tourism industry.
The aviation industry has been affected the most, with many flights being canceled all over the world.
The Director of the WTTC has encouraged flexibility in the sector so that people can postpone their travel plans, and not cancel them altogether. It has been estimated that once the outbreak is contained, it could take up to 10 months for the industry to recover.
FOOD INDUSTRY
The food industry is bracing for significant adjustments as concerns over the spread of the Coronavirus grow. While the full extent of the outbreak’s impact remains uncertain, labor and supply chain disruptions are major areas of focus.
Sales of powdered milk products surged 84% during the last week of February, according to Nielsen. Sales of staple foods like bread and eggs have increased as consumers rush to stock their pantries.
The United Nations’ Food and Agriculture Organization said the world risks a looming food crisis unless measures are taken fast to protect the most vulnerable, keep global food supply chains alive and mitigate the pandemic’s impacts across the food system.
Food companies such as Parle Products have said that they will not hike product prices despite cost pressures in terms of raw materials and supply chain logistics, completely wiping out their profit margins.
GOLD
Gold has been the biggest gainer since the Corona outbreak. This increase can be attributed to the majority of investors opting for safe havens like gold.
With an annual demand equivalent to about 25 percent of the total physical demand worldwide, India is one of the largest consumers of gold. Tangible assets like gold are preferred to protect from uncertainty and volatility, thus leading to an increase in its demand in such situations.
Gold is a precious metal, thus making it more stable than most other forms of investment.
OIL
Global oil prices have been following a downward trend since the coronavirus outbreak. Industry demand in China, the world’s largest importer of oil, has been low as China was the epicenter of the virus. Oil prices have crashed to their lowest levels in 18 years.
Apart from supply and demand, geopolitical factors have a significant impact on oil prices, especially if it involves one of the big oil-producing countries like Saudi Arabia.
The effect of the virus on oil prices has been aggravated with Saudi Arabia’s price war against Russia. With most transportation banned, there is little to no demand for fuel.
CURRENCY
China is the largest trading partner of both Australia and New Zealand. Any misfortunes in China lead to the Australian Dollar and the New Zealand Dollar bearing the brunt of it.
With reduced interest rates in Chinese banks, and money being pumped to boost the economy, the signs didn’t seem very good for China. On top of this, the tourism industry contributes 6% to the country’s GDP, and it has been ruined by the virus.
This has led to the Yuan, Australian Dollar, and New Zealand Dollar weakening over the past few weeks.
The US Dollar is the reserve currency of the world. In times of economic stress, investors sell out of riskier assets and buy into the dollar for the haven it provides. Companies also hoard dollars in fear of tougher times to come, as it is the most liquid and stable form of exchange. This has led to an increase in the value of the US Dollar.
On the other hand, the Euro, after an initial increase, has now fallen into a slump. With most parts of Europe in lockdown, the already fragile European economy further plunged downwards, and this led to a decrease in its value.
The virus couldn’t have come at a worse time for India. With forecasts of a slowdown in local demand even before the outbreak, the virus has worsened the situation.
India is one of the most densely populated regions of the world and lacks quality healthcare to take care of such an immense population. Naturally, foreign investors have pulled out their funds in Indian investments, and the INR has tumbled sharply over the last few weeks.
While all the factors point towards a global recession and a vaccine for the virus seems at least a few months away, human society has always found a way to come back stronger after a downfall, and attain great heights.
“The worse a situation becomes, the less it takes to turn it around, the bigger the upside” — George Soros, Hungarian Billionaire Investor
