Global Economic Repercussions of Covid-19
With the coronavirus wreaking havoc across the globe, slamming healthcare systems, forcing the closure of borders and causing an economic collapse, the world truly is unaware of which direction it’s headed in. While Italy, China and Iran remain the worst-affected countries by the impact of the virus, the entire world is coming to terms with the stark financial impact the virus will bring in the near future. Nearly all sectors worldwide have been impacted by the coronavirus which originated in Wuhan, China. Be it airlines, the food industry, sports or entertainment, the virus has managed to hit various nations where it hurts most.
No Nation is Truly Prepared
No entity is prepared for a calamity of such magnitude. No one had an idea that problems would worsen so drastically, turning a small outbreak in China into a pandemic where hundreds of deaths are being recorded on a daily basis. What comes to mind considering the financial situation across the world is the fact that were economies, businesses and governments prepared for such an event? We’ll partly have to blame governments and the virus itself for this major mishap.
The virus has shut down countries across the globe due to the fear that people will contract it if they are out in the open. Yes, the virus is real. Yes, the problems brought forward are huge. Countries across the globe are suffering from a potential collapse in their healthcare systems, not only financially. The trauma being experienced by people is not only physical but is also consuming their mind.
Starting off with global markets, the FTSE and Dow have now recorded the largest one day declines since 1987. Investors across the globe are fearing the safety and value of the money they have spent. At this point in time, they’re wondering whether economic recovery is even on the cards or not? In light of these events, they are now heavily depending on their respective governments to take actions that will help and stabilize economic growth. Governments in nearly 50 countries have slashed interest rates so that borrowing becomes easier and cheaper. This move will in turn lead to more spending, but how is one supposed to spend when lockdowns have been imposed and people are supposed to spend their time in isolation?
Air travel has also been severely affected. The travel and tourism industry is in jitters after nearly 100 countries imposed travel restrictions. The European Union has also taken similar measures by banning travelers from outside for 30 days. Airlines which will suffer the most are Air France, Lufthansa and Emirates in terms of traveling between EU and non-EU countries. An estimated 48,000 flights and 10.2 million seats are at risk due to the ban imposed. The United States has taken the measure to ban visitors from Europe while countries worldwide are trying to curb Chinese travelers. The United Kingdom will bear the brunt of this decision since Chinese tourists to the United Kingdom are recorded to spend an average of £1,600 during their visits.
The price of oil is also another major concern in the global economy. It hit its lowest point this year. The last time this happened was in June 2001. The Organization for Economic Cooperation and Development (OECD) has also forecast growth at 2.4%. The same figure in November 2019 stood at 2.9%.
How Lasting Will the Economic Damage Be?
While many are struggling to come to terms with the impact of the deadly Covid-19, a certain question lingers in the open. Will this pandemic have lasting effects on economies? The answer is yes. There can either be an indirect or a direct hit to consumer confidence. Indirectly, a shock would be seen in the real economy through financial markets. In that case, markets will fall and the household wealth will contract which will lead to higher savings. In such a scenario, economies will face steeper declines. In the case of a direct hit, the fear of the virus will alleviate the confidence within consumers. It will limit them to their homes and might make them pessimistic in the longer term.
At this point in time when markets are crashing and the coronavirus is on everyone’s mind, we must not panic because doing so will result in more troubles not only for consumers but also vendors, bringing about a negative change where no stakeholder involved will be able to reasonably plan for the future. To make matters safe and accessible for all segments of society and the global community, world leaders need to take prompt actions to stem the problems brought forward by this virus.
How Should Governments React?
No government should be solely dependent on financial projections since they’re currently indicating a great amount of uncertainty. There can be many other scenarios which experts should look into to help base their future decisions upon. Yes, the coronavirus is responsible for the current upheaval but if a clear analysis is given, the opportunity to reflect on decisions looking at the bigger picture could be more than enough to avoid panic. Secondly, governments should clearly track consumer signals. This would give companies and governments a leverage dealing with key insights through which apt formulations can be calculated. Lastly, all aspects both at the micro and macro levels should be under consideration.
All stakeholders must dig deeper and see what opportunities or consequences the Covid-19 can bring. Everyone involved in the world of finance and economics must also be open to adopting new technologies and processes in the post-crisis world. This will help ensure that such a crisis in the future will not cripple the world economy again.