The Economic Impact of COVID-19
First published 17th March 2020
by Alex Gale
Global | Understanding Your World | Resolving Incidents & Crisis | Fostering Growth & Opportunity
As medical experts cast an increasingly anxious gaze over the spread of COVID-19, economists may be equally nervous concerning 2020’s seemingly inevitable economic ills.
So far, the virus which originated in China’s Wuhan Province, has spread to over 110 countries across the world. The World Health Organisation has officially called the virus a pandemic and according to its latest situation report there have been 5,393 known deaths.
Spain is the most recent European country to join Italy in a nationwide lockdown. Wuhan has been locked down for more than six weeks and travel in many other Chinese population centres is still heavily restricted. New Zealand, Poland, Denmark, Ireland and El Salvador have also instigated mass quarantines of varying intensities.
The measures enacted to contain the spread of the virus as well as the expected panic do not bode well for the global economy.
The Global Economy — What Are the Figures Saying?
So far, March has been a gloomy month for the global economy. A combined fear of the COVID-19 virus and a significant fall in crude oil prices following the collapse of the OPEC+ production cuts agreement has caused major declines in stock markets.
On 9 March, the main US and UK stock exchanges suffered their sharpest falls since the 2008 global financial crisis. The same story was evident across stock market indexes, with the Nikkei down by 25 percent and the FTSE down by 28 percent. The Dow and S&P 500 suffered their furthest falls since 1987.
Beyond the initial hits taken by the stock markets, projections for annual growth do not look positive either. A report by the Organisation for Economic Cooperation and Development (OECD) has stated that, ‘Growth prospects remain highly uncertain’. The OECD are currently predicting a global growth rate of 2.4 percent in 2020, a fall from 2.9 percent in 2019. However, if the virus is ‘longer lasting and more intense’, global growth may fall as low as 1.5 percent, this year. It has also been suggested that growth may be negative for the first quartile of 2020.
Impact on Industry
Due to a combination of government-imposed travel restrictions and lowered consumer demand, the air travel and tourism industries are likely to sustain the first major financial hits from the virus. Indeed, the International Air Transport Association (IATA) have warned that the industry may suffer a $113 billion loss. Airline share prices have already dropped by nearly 25 percent.
Maritime travel has been similarly affected and several prominent cruise lines have suspended travel arrangements. The stock values of Carnival Corp. have fallen by nearly 60 percent and the Royal Caribbean and Norwegian cruise lines have lost over 70 percent of their value in one month alone.
Meanwhile, the United Nations World Tourism Organisation (UNWTO) has predicted losses in the tourism sector ranging between $30–50 billion, with a negative growth between 1–3 percent this year.
Manufacturing, distribution and logistics are set to encounter difficulties as the virus spreads. Disruption was first felt in February when factories in China were forced to close. This affected manufacturers in Europe and North America who rely on components from East Asia. Now that Italy is in lockdown to contain the virus, Italian factories are also having to temporarily close. For example, Ferrari has suspended the production of its supercars in two plants until 27 March.
Although the COVID-19 virus is bad news for the global economy it will present growth opportunities to a select few sectors. If quarantine measures become more widespread, home media and entertainment-based firms offering streaming services and gaming platforms are likely to benefit from an upsurge in demand. The healthcare and pharmaceutical sectors will also likely see a rise in demand and investment.
Local Impact
The COVID-19 virus has been affecting high-street based retailers in very different ways. Whereas coffee shops, restaurants and retailers selling non-essential items have experienced a sudden drop in customers; supermarkets, pharmacists and hardware retailers have been inundated with panicked shoppers trying to stock up on essentials.
The battle between shoppers for toilet paper and soap has become particularly heated. A viral video from Australia showing shoppers brawling over toilet paper demonstrates the increasingly panicked response some consumers are having towards expected containment policies to deter the spread of the virus.
Local authorities will need to work with suppliers and retailers in affected areas over the coming months to ensure basic commodities are still readily available. Some supermarkets in the UK, US and Australia have already imposed purchase limits to reduce panic-buying.
Government Responses
In the coming months governments across the world will look to policies which can ease the economic burdens imposed by COVID-19. This is especially important given fears that the virus may cause a global recession.
Cuts to interest rates will likely be adopted by several countries as an early measure. The US Federal Reserve has already made an emergency half-point cut to its benchmark lending rate and the Bank of England has cut the base rate from 0.75 percent to 0.25 percent, the lowest level in history. Further interest rate cuts are expected in the US.
Governments may also introduce fiscal policies, including tax cuts to encourage consumer spending and reduce business losses. Increased public spending is expected, particularly in the health sector, but also more broadly to prop up economies until the worst period of the virus passes. Italy has postponed mortgage and tax payments in order to ease the financial burden on households.
The main challenge that governments will face is overcoming economic ills which are not caused by inherently economic problems. Fiscal and monetary policies can only do so much when demand is stifled by fear and supply chains are disrupted by measures enacted to safeguard the health of employees.
Many of our clients globally are already engaging with us as they determine how to monitor the situation whilst continuing their operations and keep their teams and operations safe.
We’ve setup a hub on our website to help our clients track the situation as well as access the latest in analysis as well as advice from the World Health Organisation — find us at www.complexglobal.co/covid-19
We’re helping our clients through monitoring and analysis of the situation via inCountry as well as our local, regional & global analysts and experts as well as our crisis response and emergency management provisions — ensuring our clients are assisted in their time of need.
If you have concerns about your current operations and the risks to your team or your business or if you feel you need a more developed understanding in the current situation and what might help you be better prepared, our team is able to assist. We have an expansive team in most regions with access to the latest information and analysis as well as scenario planning and support. To find out how we can support you, our team can be reached at coronavirus@complexglobal.co
