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The Impact of Coronavirus On The Global Economy
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“Although the outbreak comes under control in most parts of the world by late in Q2, the self-reinforcing dynamics of a recession kick in and prolong the slump until the end of Q3. Consumers stay home, businesses lose revenue and lay off workers, and unemployment levels rise sharply. Business investment contracts, and corporate bankruptcies soar, putting significant pressure on the banking and financial system.” Says a Mckinsey report, reiterating what others in the economic world have said willing us to believe in the impending pall of gloom. Genuine recovery, experts predict, will thus come perhaps only by the end of the last quarter of the year and that if we are coordinated, proactive and a bit optimistic.
“I personally think we are headed for a long run recession the likes of which we haven’t seen in our lifetimes. I would say much worse than the Lehman Brother’s aftermath. At that time the central banks could print cash endlessly but now we have a demand problem as well as a supply problem. Rates are at historical lows and therefore there is no room to print much more cash. In fact, even if they did there is not much cash will do to help you because credit quality will be so poor that no one will lend.” Perhaps this sounds morbid or unbelievable, hope the above prediction is wrong but forewarned is forearmed and let us analyse how much impact the coronavirus will have on the global economy at large. This may be a doomsday prediction or not but we need to gear up for the worst and be prepared.
“Different” is the keyword for post coronavirus landscape says El’Erian the well-known analyst on Bloomberg and goes on to say that markets will recover but economies will take time and that will be “really tricky.” He calls it a combination of the 1930s like Depression and the 2008 Financial Crisis.
Every region or country has its own issues. Global leaders have some of the toughest challenges on hand. On one side the medical emergencies due to the virus have necessitated the entire health care system to be on its toes and the time to revamp or introduce emergency measures to tackle the crisis looms large. The other side is the economy, to ensure smooth supply chains at this moment, see that people do not starve and at the same time think ahead so that they can jump-start the economy as soon as the coronavirus medical crisis dissipates.
Anticipating and predicting what lies ahead is the key to the successful handling of the challenges. Europe, for example, has a reasonable safety-net yet small firms do not have a cash buffer for this scenario. Similar is the situation in many other economies around the world. A coordinated strategy is required for European countries and the world for their economies to survive the present crisis caused by the coronavirus throwing supply chains out of gear and leading to future layoffs, factory lockouts and ensuing product shortages all leading to a vicious cycle that is ultimately the recipe for a disastrous recession.
The WTO Director believes that the trade impact is worse than the 2008-09 crisis and the aftermath could be much larger. However, it’s different from that crisis or the Depression because there are chances of recovery once the crisis of the virus passes. The world economy, as they say, is on life support and we are looking at an economic downturn. But the good thing is that unlike in previous financial crisis’ there is no need for economies to be reshaped, just doing the right thing will help economies to recover.
Perhaps what is required immediately is for a coordinated global economic strategy because right now each country is looking inward to sort out their own problems. The multi-lateral system however is not yet damaged because today’s crisis is different from the 2008 crisis. After all, each country has a separate domestic crisis and policies are not the same however there is scope for the world to come together collectively and work out a strategy for the global economy to make a recovery.
With over 582,842people worldwide infected by the pandemic, businesses have been left to despair. The Dow Jones and the Nikkei have experienced massive falls since December 31, 2019, and people fear that economic packages may not help businesses to recover sufficiently. Such aid packages, experts warn, as announced by the US can just be volatile till the pandemic is contained. The BBC says, “In the United States, the number of people filing for unemployment hit a record high, signalling an end to a decade of expansion for one of the world’s largest economies.”
All industries have been badly hit, trade has been hit and the airline industry is hit hard. The question is who will survive this crisis and who won’t, who will come out unscathed and who will go down under. Once they emerge it will be survival of the fittest, a long struggle that economies of the world have perhaps never thought they would have to undergo again and so soon.
As the world comes to terms with global disruption of trade and commerce, the importance of online ecommerce channels becomes evident. With more people opting to shop online and ecommerce revenues almost doubling, more businesses are accessing online channels of sales.
Since major production chains have been affected due to lockdowns all across the globe and even car dealers today have started selling online. Chinese car sales are said to have dropped by 86% in February and oil has slumped and the demand might be hit with the further spread of the pandemic or extended lockdowns.
The Organisation for Economic Cooperation and Development (OECD) has forecast growth of “just 2.4% in 2020, down from 2.9% in November 2019.” Adding to this they said that a “longer lasting and more intensive” lockdown could reduce the growth to 1.5% in 2020. So the global economic scenario is nothing but grim in the coming days as an impact of the corona pandemic.
The huge damage to world economies is here to stay. Low banking interest rates will not help monetary policies and fiscal responses from Governments may not help to overcome the residual damage left by the pandemic. Genuine recovery may thus come after a long struggle and adaptation to the way we do business today.
An analysis by JP Morgan paints quite a grim picture. “There is no longer doubt that the longest global expansion on record will end this quarter. We now think that the COVID-19 shock will produce a global recession, as nearly all of the world contracts over the three months between February and April,” said Bruce Kasman, Chief Economist at J.P. Morgan.
There will be a sharp rise in unemployment and the spending power of people will drastically reduce. When people don’t buy, businesses will fight to survive. Many essential goods which we are used to will disappear from the supermarket shelves and may reappear much later. Industrial production will make a slow recovery and the economy will continue to be in the grey and so will the general mood.
“Although the outbreak comes under control in most parts of the world by late in Q2, the self-reinforcing dynamics of a recession kick in and prolong the slump until the end of Q3. Consumers stay home, businesses lose revenue and lay off workers, and unemployment levels rise sharply. Business investment contracts and corporate bankruptcies soar, putting significant pressure on the banking and financial system.” Says a Mckinsey report, reiterating what others in the economic world have said willing us to believe in the impending pall of gloom. Genuine recovery, experts predict, will thus come perhaps only by the end of the last quarter of the year and that if we are coordinated, proactive and a bit optimistic.
At Eunimart we feel that the future might look something like this: ancillary industries may now be situated closer to the main industries or integrated, cutting costs of transport and warehousing facilities or large investments in automation for stocking inventory and warehousing will be of primary importance. In-house development will be the in modus operandi to tide over the economic crisis. Companies will save on infrastructure costs and encourage employees to work from home; finally, we might go from globalization to localization as far as dependencies of industries are concerned so that future crisis can be averted that might result from another crisis hitting countries like China or other Industrial hotspots.
With great demand building up in the market, it is time for the sellers to re-evaluate their product line, sales channels and automation solutions during the Lockdown to scale globally and orthodox businesses should prepare themselves for the future and embrace technology.