Wondering about the effects of coronavirus on the world economy? Read on to find out the economic impact of COVID-19!
The coronavirus (COVID-19) outbreak has taken the world by storm. It has led to some major disruptions in the global economy. In these difficult times, businesses need to stay informed about how the pandemic is affecting the world market. If you are aware of the exact impact of the outbreak on the world economy, you’ll be better equipped to deal with its fallout and keep your business afloat.
So, here’s how COVID-19 has affected the global economy:
The Channels of Global Economy Have Been Disrupted
The virus has disrupted three major channels of economy – supply, demand, and finance. Here’s how:
On the supply front, the sudden halt of production in most adversely affected areas has resulted in global value chains. If left unaddressed, these disruptions can potentially lead to widespread factory closure. On the demand front, the reduced income in terms of unpaid indefinite leaves and even layoffs combined with a fear of COVID-19 has resulted in lower private spending. Lastly, on the finance front, risk aversion and chances of liquidity in the face of the pandemic has caused stress in the global financial markets, which has started affecting the global economy.
Considerable Increase in Unemployment
There has been a massive increase in worldwide unemployment. In the US, a whopping 17 million American citizens have sought unemployment benefits during this crisis. The ILO has estimated that the COVID-19 lockdowns are affecting about 2.7 billion workers! The pandemic will continue to affect all workers, not just those who have underlying health conditions. Moreover, the total loss of jobs in 2020 will depend entirely on how the pandemic shapes up in the coming weeks.
Capital Flight and the Possibility of Insolvency and Bankruptcy
Coronavirus has already caused capital flight – a massive exodus of financial assets and capitals – in various emerging markets such as India, China, and Brazil. Due to the pandemic, these countries, along with 21 others, have seen a loss of US$70bn in investments in the past two months. This capital flight has rekindled doubts that countries such as Turkey and Argentina might default soon. This is due to the continued currency depreciation in these countries.
Significant Reduction of Foreign Direct Investment
The COVID-19 pandemic has also affected foreign direct investment. According to UNCTAD, there will be a 30% to 40% collapse of global FDI during this year. The countries most affected by the virus will naturally suffer the most; however, other countries will also face the impact in terms of the supply chain disruption for multinational companies. Many of these companies are reducing their foreign expenditure. The energy, airlines, and automotive industries have suffered the most.
Global Losses in Various Industries and Markets
Due to the slowdown in the production and export of manufactured goods and the global slowdown in demand, countries and companies are facing an economic crisis. Most industries are dealing with major losses in terms of revenues. In China alone, the pandemic caused retail sales to drop a staggering 20.5% in February, a time when the outbreak was out of control. Naturally, the travel industry ranks pretty high amongst the industries hit hardest by the virus. It is estimated to lose around 820 billion dollars! According to IBIS, countries such as Canada, the US, and Germany have seen recurrent losses in the domestic market. The food industry, in particular, has suffered losses due to the closure of restaurants, pubs, and caterers.
All in all, the COVID-19 pandemic is estimated to cost the global economy a whopping $2.7 trillion! This is why you must act smartly to keep your company afloat during these trying times.