Has The Novel Coronavirus (COVID-19) Already Affected The Global Economy?

Mar 9, 2020

In a matter of weeks, COVID-19 has grown from China’s outbreak to a global problem that does not seem to be slowing down. The novel coronavirus was first identified in Wuhan, China, in late 2019, and since then, the virus spread through the world like wildfire. The virus is spread via respiratory droplets and can cause pneumonia as well as acute respiratory distress syndrome in some patients.

Governments around the world reacted differently to contain the virus. Since 23rd January, China has kept Wuhan, as well as many other cities in the Hubei region and near it, on lockdown. Many travel restrictions have been applied as WHO (World Health Organization) warned people to avoid visiting high-risk zones and take extra precautions when in public places.
The global epidemic has caused worrying consequences, with people panic buying groceries and hoarding medical supplies like face masks and antiseptic gels. Tedros Adhanomhe, head of WHO, has recently reported that the lack of face masks is putting medical personal in danger.

In the commercial world, the impact has been drastic as well. With China on pause, there have been shortages on manufactured goods, delays on shipments, and disrupted supply chains all around the world. In countries most affected by the virus, like China, Korea, and Northern Italy, a lot of business activity has been ceased causing angst among business owners. Factory shutdowns have affected global companies like Nissan and Apple, who have mentioned that their “supply will be temporarily constrained.” Apple has closed all of its stores in China.
China’s economic growth is expected to decelerate to 4.5% in 2020, according to Reuters. Currently, there are over 100,000 Coronavirus cases worldwide, and that number continues growing. According to the Organization for Economic Cooperation and Development (OECD), global growth could grow at its lowest rate in over a decade should the virus intensify. OECD fears that the virus may put many countries in recession as various industries are affected by the outbreak.

The last week of February was devastating for financial markets. Global shares suffered their worst week since the financial crisis in 2008, with three US indexes ending their week down 10% and London’s FTSE 100 index dropping down 3.2%. Oil prices dropped with Brent prices falling at its lowest yet this year to below 3%. The Dow Jones Industrial Average plunged almost 4%. Goldman Sachs believes that the virus will cause a decline in economic growth in US business profits in 2020.

Understandably, the businesses hit the most have been airlines. As countries impose travel bans in an attempt to contain the virus, various airlines have suffered from cancellations and compensations for delayed flights. easyJet reported that with the increasing number of Coronavirus cases in Northern Italy, they witnessed “a significant softening of demand and load factors into and out of our Northern Italian bases.”

UK travel industry experts worry about the loss of Chinese tourism in 2020 as flights booked from China have dropped over 50% behind in comparison to the same period in 2019. Companies are banning all but essential employee travel to avoid the virus.

Retailers like Ralph Lauren believe that their sales will drop excessively since people prefer staying at home instead of going shopping.
The upheaval in global markets caused the Federal Reserve to take drastic measures to eliminate the damage by reducing interest rates. The US has not yet seen significant economic damage – restaurants, bars, schools, and other businesses remain open. However, economists do fear that a pandemic could result in a severe recession. Industries beyond the manufacturing and travel sectors could be deeply affected by the outbreak.

But on a bright note, one commodity bounced back to its 2012 price. Gold is a “safe haven” asset that, in times of ambiguity, becomes investors’ top choice. Other metals like copper and platinum edged down, however. The digital world seems to have benefited from Coronavirus, at least in terms of innovation. Apps and platforms are being developed to help people cope with the outbreak. Residents in Wuhan have turned to the online world to help them cope with the lockdown – there has been an increase in e-learning and e-delivery, which could be a glance into the future. After all, the Alibaba and Aliexpress platforms were said to soar during the 2003 SARs outbreak, where people had to turn to new technologies to help them through the lockdown.

Many economists worry about the psychological effects caused by the outbreak. Stress may cause people to act irrationally, even if their own risk of getting ill, let alone dying, is quite low. Some experts have even compared these effects to the reaction to terrorism. While we wait on edge to see how the effects of Coronavirus unveil, it’s essential not to be lured into the untruthful world of the media. Many media portals have caused more damage than good by producing exaggerated journalism and raising fear in public, something that has been criticized for being far worse than the actual virus itself.