CORONAVIRUS (COVID-19) AND ITS GLOBAL ECONOMIC IMPACT

Natural disasters, war, recessions and health pandemics - these are all big hits to the global economy. Today, we are in the midst of a pandemic that is taking the financial world by storm; the novel COVID-19 or coronavirus.

what exactly is the coronavirus?

It’s a virus - specifically in the coronaviridae family, which has several different strains. In December 2019, the coronavirus strain (nCOV-19) was first diagnosed in Wuhan, after individuals reported experiencing flu-like symptoms with ties to a seafood market in the Wuhan area. But the symptoms may not show for days, or in some cases at all, so it thrives on weaker immune systems - like in the elderly or those with pre-existing health conditions.

PHOTO BY CDC ON UNSPLASH

A domino effect like we’ve never seen

Due to how contagious and how dangerous this virus is to those with compromised immune systems, the world slowly began to come to a halt. Schools and universities have moved to online classes. Social lives have become nearly non-existent as clubs, bars, restaurants and social gatherings have been either severely limited or forced to shut down. Tourism, travel, and airports have been brought to a near standstill, with the airline industry projected to lose billions. Sports leagues and events have either been halted, postponed or held without audiences. Companies are telling their employees to work from home, and if they feel sick or have recently travelled, self-isolate for at least two weeks.

Italy has been the hardest hit country in the EU with thousands of deaths from the virus. It was the first European country to go on full lockdown earlier this month, forcing measures upon both citizens and visitors to contain the spread. Residents are forced to stay inside and self-isolate from others, and to leave their house they must submit a form to get the approval. We had a chat with the CEO of ParkinGO (Davide Rovelli), whose headquarters are based in Italy. Davide explains exactly what it’s like running a business from Italy during this outbreak. You can check the video out here.

As of March 17th, 2020, 26 other countries in the EU have started following similar rules, forcing non-essential places of business, schools, and offices to close. This is all in an effort to “flatten the curve”, a concept aimed at containing the virus so health care systems aren’t overworked.

The global economy is taking a fall

You could only imagine how this is all having seriously adverse effects on the economy. People are losing jobs, small businesses are risking bankruptcy, and the virus is still spreading with increasing cases every day. The world is in survival mode and it could result in a recession.

Oil prices have slumped below $25 per barrel, hitting 18-year lows. While cheap petrol is great for us, it’s a disaster for suppliers as a price war has broken out for who can afford to stay cheaper for longer. International trading is sustaining deficits comparable to the 2008 financial crisis. A Google search of “FTSE100” will show you graphs with an alarming drop in points from a month or even five days ago, with the index plummeting to 30%.

Global economic growth could also drastically slow down. The OECD is concerned that if the spread doesn’t stop and the countermeasures on everyday spending aren’t lifted, growth could slow to 1.5% for 2020, halving current growth projections. Travel, leisure, and hospitality will suffer massive losses. The airline industry is already on track to lose around €26 billion according to the IATA. Restaurants, bars, hotels, and resorts will barely have any business and small business owners can only hope to ride this out as they can’t afford to stay afloat without people buying things.

How’s Europe handling it?

Although the virus is continuing to damage the economy day-by-day, Europe is doing their best to be prepared. The European Commission will set aside €37 billion through regional spending programmes to help those financially affected - promising fiscal flexibility for countries to allow tax deferrals, state loans, income subsidies and more.

In addition to the Bundestag expanding government-subsidised funding for workers sent home due to the virus, Germany is making loans north of €500 billion available for affected businesses. The UK is following suit with a €330 billion loan package for their businesses as well. French President, Emmanuel Macron, will provide vast support for French businesses, with strategic costs reaching €45 billion according to financial advisors. Italy is dispersing funds from a €25 billion rescue pot to help keep Italian health systems afloat and provide one-time payments to those that have been laid off. (source)

Ok, so what now?

China has recently reported their first day with no new cases since the outbreak, but is the damage already done? Historically, in the midst of global pandemics, international GDP levels graphically take on a “V” shape, meaning there is a steep market drop followed by a sharp rebound (source). It happened with the lethal Spanish Flu in 1918 and the SARS epidemic of 2002. Given this, it’s more than likely that the 2020 economy will bounce back, it’s just a matter of when.

To Wrap Up

The 2020 coronavirus has taught us a lesson in how damaging an out-of-control biological epidemic is to our economy. It spread fast and hard, taking the lives of thousands, bringing our economies to its knees, and crippling our social lives. We were slow to respond, but it’s a lesson learned. The best thing for us to do now is listen to our governing health organisations to help reduce the spread.

Takeaways

• COVID-19 is in the same viral family as the SARS virus from the early 2000’s, but hadn’t been diagnosed in humans before December 2019.
• Countries worldwide are closing themselves off to prevent the spread, limiting social interaction and travel, which will lose billions in the economy.
• Oil prices are plummeting and causing price wars, global economic growth could slow to 1.5% for 2020, international trading indexes are seeing historic lows and industries from travel to electronics are taking massive losses.
• Countries including Germany, Italy, France and Britain are providing large loan programs, tax deferments and cash handouts for individuals out of work.
• We are likely in the early stages of a bad recession, but historically, we should bounce back and have things return to normal.

BY DIAMAAN GUEYE