How Coronavirus Pandemic is Affecting the Global Economy and its Various Sectors
At the beginning of the year, investors around the globe expected the 11-year bull market to continue in the year 2020. However, the spread of Novel Coronavirus shockingly disabused that notion. And, as a result of the outbreak of a pandemic, Dow fell from record highs to bear-market territory in just a matter of weeks.On March 11, 2020, the coronavirus outbreak has been labeled as a pandemic by the WHO, with cases in over 150 countries. As of April 28, 2020, 3.12 million confirmed cases have been reported worldwide, with a number of recovered patients over 929, 000.
Covid-19 risks have been estimated so aggressively across asset classes that some fear of recession in the global economy might become a foregone conclusion.
Here is a detailed insight at Coronavirus’ impact on the economy:
What Markets Are Telling Us
The brutal drawdown in the global financial markets indicated that the world economy is on a path to recession. First have a look at the valuations of risk assets, where the impact of Coronavirus is not uniform. On the positive end, credit spreads have increased noticeably little, which suggests that credit will not be going to foresee funding and financial problems. Equity valuations have fallen from recent highs; however, they are still elevated relative to their long-term history.
Second, while financial is a relevant recession indicator, bear markets and recession should not be automatically combined into a single unit. In reality, only two of every three bear market conflate with each other, which means one out of three bear market is non-recessionary.
Impact so far :
The government, Wall Street and the American people want to see the virus contained. The risk assets remain vulnerable to additional selloffs. However, there are some bright spots also. The Coronavirus outbreak has increased the demand for medical products, especially test kits and face masks to prevent the spread of disease.
The news across other risks indicates the slowdown of earnings in the first quarter of 2020. For example, Nike is heavily dependent on China for its production, thereby igniting fears of fall in earnings due to the disruption of the supply chain. Starbucks has also shut more than of its 4,292 stores in China, and Apple has begun looking for an alternative production option, which can make up for the loss of the company.
While people are locked down around the globe, the number of those who are infected is still rising exponentially. Collectively worldwide experts are working to find the vaccine which can prevent the population from the risk of Corona. However, nothing can be said about the cure of the disease till the date. Unfortunately, more economic pain in the USA and every other developed and developing countries as virus containment measures continue to decrease economic activity.
Which Sectors of the Economy are Hit Hard by the Pandemic?
Events, Tradeshows and Conferences :
From watches to phones and planes to jeans, some of the world’s biggest tradeshows and conferences are canceled due to coronavirus. More and more organizers are pulling off the events over fears of spreading the deadly disease, which has made thousands of attendees to cancel their travel plans.
The most high-profile cancellation includes Facebook’s annual F8 conference, World Athletic Indoor Championships, and Mobile World Conference, which was hoping to see visitors from Facebook, Nokia, Sony, LG, Vodafone, BT and Ericsson.
Travel and Tourism
Many business people are canceling their traveling plans and vacationers are also rescheduling their trips to the end of 2021. During the first week of April 2020, the number of scheduled flights worldwide decreased by 66% of what compared to the first week of April 2019. In some countries, the decline in the number of passenger flights reached more than 90%, for example, reaching 98% decline in Italy. On March 22, 2020 Airline capacity in Europe was reduced by 88% when compared to the same day in 2019. Airline passenger loss estimate has reached 320 billion US dollars globally, which indicates that the aviation industry is going to suffer a lot as a result of the crisis.
As mentioned above, this year many trade-shows and conferences have been canceled including major tech conferences such as Mobile World Congress, Google I/O, Electronic Equipment Expo (E3).
Coronavirus has a mixed impact on tech companies. With work from the home policy being a mandate for employees, some companies are making most of it in terms of profit. For example:
- Slack Technologies Inc. has confirmed that due to work from home policy, the company has experienced an increase in sales of their workplace-collaboration software.
- According to the App Annie, Zoom, an enterprise video communication solution is one of the most downloaded apps in the US in the 2nd week of March 2020.
Since technology companies have closed their offices and restricted employees from traveling to the affected areas, it is affecting the supply chain adversely. For example, manufacturers in China are key suppliers to technology companies across the globe. As they are impacted by Coronavirus, on-time delivery of tech businesses is getting hugely affected.
On the other side, IT firms are hiring remote development than ever. Remote working has been given huge preference amid Corona as it aids in maintaining social distancing without affecting productivity, thus helping companies in meeting the deadlines.
Sports & Entertainment
Disney and Universal Studios have shut down several theme parks as large gatherings may trigger the spread of the virus. NBA has suspended its season after one of its players tested positive for COVID-19. Movie theaters are temporarily locked down in all parts of India to curb the COVID-19 spread.
The entertainment is adversely impacted by the pandemic. However, as people are staying at home and taking quarantine, the surge is experienced in the demand of gaming apps like PUBG, music and video streaming apps like Netflix.
While people are under isolation to mitigate the impact of COVID-19, hyperlocal delivery services are making the most of it. Doorstep delivery services for groceries, packages, medicine, and food, etc are rising.
To make it safe for the recipients and riders, food delivery companies such as Postmates, Deliveroo, Zomato, Instacart are giving options to choose contact-less delivery, wherein the rider drops-off the package outside the doorstep.
The COVID-19 spread is proven to be the biggest threat to the financial markets and the global economy. When you look at the short term impact, people have started making safer investments in the stock market, which will a negative impact on VC funding of new and existing fintech firms.
The Fintech industry is experiencing a drop in transactions at all levels. Since people are in self-isolation, they are spending less than usual, which is leading to a low transaction rate. In fact, cryptocurrencies such as Ripple, Bitcoin have experienced a major dip amid the coronavirus effect.
In a Nutshell
This is an evolving crisis in which no one is able to determine when it will be over and what is the long-term impact could be. The stress will be placed unequally on the society and individual and on the government. The structural risk associated with Coronavirus, which affects everyone, is as economic as it is biological.
Founder and CEO at Graffersid.com -a Website and Mobile App Development Studio that helps corporates to automate their processes and entrepreneurs to build their products from Ideation to being Investor-ready.
Before the hunger of making an impact took over, Sidharth has worked as an adept developer for 7 years in top MNC, where he has managed system for Fortune 500 corporatesas well as for unicorn startups.
That is when Sidharth saw the gap between “What client want” v/s “What client needed”. It is rare to find people who can really listen to the client, understand the requirement and provide suggestions like it is their own product. This led to the foundation of Graffersid, which has now established its name for its unique approaches and customer-centric design principles.
Sidharth, being passionate about tech and start-ups also manages a community of skilled developers and successful Entrepreneurs. Sidharth and his team have worked with clients from various domains and also with IT giants like Infosys. With their strategic approach and state-of-the-art products, they have managed to deliver products which got selected in Y Combinator, Google Incubation USA, BlueChilli Australia, Coca Cola Ventures Australia and more.