Coronavirus Crisis of Economy – Impact, Counter Measures

To Begin with

Coronavirus disease or COVID-19 outbreak was first reported in the Chinese city of Wuhan in middle of December of 2019. Since then, it has spread to 188 other countries like wildfire. Besides taking a toll on the people, COVID-19 has hit the global economy real hard. Economists around the world fear that further spread of COVID-19 will crush the economy.

The Coronavirus Crisis of Economy

Stand Still

“Still waters often run deep”

– Smokey Robinson

As fatalities grew exponentially, governments around the world started to take measures to curb the spread of COVID-19. Quarantines were imposed and full-scale lockdowns were implemented. Most economic activity came to a stand still.

The Free Fall

In just few days of the outbreak, stock markets started collapsing, credit markets jolted, massive bankruptcies turned out, unemployment soared and GDP started plummeting down. Suddenly, there was massive shortage of liquid money in the global market. Every part of the economic machinery was in unprecedented free fall. Some examples:

• The US stock market descended into bear territory. With 20% decline from its peak, it was the fastest ever descent.
• On March 13th 2020, India’s stock market was shut down for 45 minutes during prime time as stock market crashed.

Coronavirus Crisis vs Previous Financial Crises

The onslaught of the global economy by COVID-19 has been faster. The likes of the Great Depression, Global Financial Crisis (GFC) of 2008 or even World War II took years to play out. The Coronavirus crisis of Economy transpired in a span of just few weeks.

Consequences of Coronavirus Crisis

Unemployment

Millions of people across the globe have lost their jobs. In developed countries like the US, over 30 million people have been unemployed. Similar is the case with UK where over 1 million people have become jobless in a span of 3 weeks. For developed countries, people are at least entitled to unemployment benefits. Situation is worse for developing countries. Financial firms have warned that the unemployment rate could skyrocket.

Debt Burden

Loan applications have increased after non-essential outlets like shops pubs, restaurants have been shut down following government’s lockdown orders. Many small businesses have run out of customers and money. They are unable to pay even minimum amount of monthly repayments. Consequently, the debt burden is increasing day by day.

Oil prices hit rock bottom

Oil prices have come down to a 21-year low. Demand for oil suddenly plummeted down as countries across the world came to stand still. The crude oil price was already going down due to OPEC-Russia blowout. Corona virus has fuelled it further.

Travel takes the plunge

The travel industry has been badly damaged. Governments, around the world, have imposed travel restrictions to contain the spread of COVID-19. Customers are cancelling previously booked business trips and holidays leading to airlines cutting flights.

Production takes a pause

As governments around the globe are persevering to contain COVID-19 by imposing full fledged lockdowns, most production and supply chains have come to a halt.

When the World’s Manufacturing Powerhouse goes into lockdown

China, referred to as world’s manufacturing powerhouse, is the largest manufacturer in the world. It is responsible for 30% of the global manufacturing output. It is also the world’s largest exporter of goods. The ripple effects of China’s strict lockdown began to show, almost instantly, on the global economy.

Risk of Recession

With so many people already jobless, economy going down like never before, major industries going at loss and the COVID-19 still on rampage, the risk of a greater recession cannot be ruled out.

Counter Measures for Coronavirus Crisis of Economy

Central banks slash interest rates

Central banks in many countries have slashed the interest rates. Borrowing will be cheaper, saving will not yield much benefit. This would encourage spending and in turn will boost the economy. For example, India’s central bank, The Reserve Bank of India, has slashed interest rates to keep the Indian economy afloat. Needless to say, the economy will be volatile until the pandemic subsides.

Containment of COVID-19

Containment of virus by widespread COVID-19 testing, tracking, and treatment, strict quarantines and lockdowns should be carried out.
And since it will take months at large for manufacturing commercial vaccines, antivirals and other immunity boosting therapeutics need to be deployed on a large scale. Meanwhile, US based biotech firm Moderna Inc. has progressed into human trials for COVID-19 vaccines based on revolutionary mRNA. The results are promising. Fingers crossed!

Silver Lining – The positive effects of COVID-19 pandemic

Technology Online

Governments around the world have encouraged employees to work from home. Companies selling technology as service such as Zoom and Microsoft have thrived as more and more people resorted to virtual communication like video conferencing, chatting and emails.

The need for online shopping and entertainment has also soared as people stay indoors. Amazon’s share price has plummeted high, while streaming platform Netflix’s market value has skyrocketed. At one point, Netflix surpassed oil-giant Exxon Mobil.

Pollution

Meteorologists, space agencies and organizations of the like around the globe have reported impressive fall in pollution levels, emissions like Nitrogen dioxides. This has been observed in major European cities like Paris, Milan and Madrid, India’s industrial hubs and so on.

Till the Coronavirus Crisis of Economy subsides

The risk of a Greater Depression or a bigger financial crisis is looming large. Unless the pandemic is stopped completely, economies around the world will continue their free fall. Even when the pandemic is contained, overall growth still might not return to normalcy anytime soon, not this year. Putting the derailed economy back to track is going to be tough job.

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feature image courtesy: Markus Winkler on Unsplash

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