Coronavirus and The Global Economy

Corona Virus and The Global Economy

1720: Great Plague

1820: Cholera

1920: Spanish Flu

2020: Corona Virus

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For the last three centuries, epidemics have set in and affected the world drastically. The "CoronaVirus" pandemic which evolved in Wuhan, China in the month of January, 2020, is very different from the past epidemics, as they were limited to a particular part of the world. This was probably because of the lack of flexibility of transport. Nothing was as easy as it is today. The present scenario is completely different. Travelling to distant places has become a matter of a few minutes to hours. With science developing enormously, people have got innumerable facilities.World health organization says “Covid-19” is the most dangerous virus that the world has ever seen. Perhaps, the cause of danger is its unknown nature. It is a virus which was never spoken about earlier and therefore had no treatment. Scientists and doctors have researched that it was transmitted to humans from animals. It is communicable in nature and spreads from person to person through close contact. The detection of the disease instantly is difficult as the symptoms show up after a period of 14 days. SARS CoV 2 belongs to the corona virus family. It is also known as ncovid-19 (n-novel, which means new). This disease causes respiratory illness (like the flu) with symptoms such as cough, fever, and in more severe cases, difficulty in breathing.

Covid-19 is impacting the world drastically as data show that the total number of cases across the world are 362,051, with 15,496 deaths and 100,657 recoveries. India has 471 individuals found positive. China stands first with 81,093 cases. USA for the first time has reported 7,295 new cases in a single day making a total of 40,841 cases by March 23, 2020. The numbers show how rapidly the virus is spreading.

Previously stock market trading used to be in “Open outcry” where no online trading was

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available. Any global disaster impacted the stocks slowly, and now situation is completely different as the world has progressed so much. Anything happens anywhere in the world, impacts the market immediately. It was on 22nd Jan, 2020 that China’s Shanghai Index broke almost 6.49%. A huge fall after such long moves in the past. The trade war with the United States left its economy expanding at the slowest pace in 30 years, and now Covid-19 slowly broke almost 15.26%, crashing China’s economy, and the effect of Virus broke almost all the indexes in the world. US Dow Jones broke almost 30% from top & Nifty-50 almost 26% in a week. The fear and panic made investors sell their holdings and new investors coming up as they could now buy blue-chip stocks at cheap price.

China being the largest Importer of Crude Oil almost 8,400,000 (bbl/day - est.) from Saudi Arabia Russia and others, now had to shut down its import due to which the demand for crude has fallen drastically bringing down the price from 65$ per barrel to 29$. This fall impacted global economy too, bringing down the share price of stocks related to every industry.

It is to be noted that the global economy does not only depend on the industrialists but also on the below middle-class people who earn their living by daily sales or work (such as the house helpers, vendors and so on). With lockdowns declared in so many countries, there are hardly any people on the streets due to which their daily wages are decreasing to nil. The governments are trying their best to minimize the spreading of the virus. It could affect up to 42 percent of China’s economy according to Standard Chattered. Companies struggling to make payments on loans leading to rise of NPA (Non-performing asset) of $1.1 trillion. In China, US, Europe, India, almost all the countries, the airlines have been shut and is expecting to lose $29 Bn in revenue according to the International Air Transportation association (IATA).

Argentina's economy is expected to contract for the third consecutive year. Inflation is running at more than 50 percent and the country is in talks with the International Monetary Fund (IMF) to avoid a default on its debt. Downgrade in economic forecast due to the outbreak has led major institutions to cut their forecast for the global economy. In March the report, said it downgraded its 2020 growth forecasts for almost all economies. The global economy is expected to grow by 2.4% in 2020, down from 2.9% projected earlier.

Slowdown in manufacturing activity: China has been hit hard, Caixin Manufacturing Purchasing Managers index a survey of private companies showed that China’s factory activity contracted in February, coming in at a record-low reading of 40.3. A reading below 50 indicates contraction. Such a slowdown in Chinese manufacturing has hurt countries with close economic links to China, many of which are Asia Pacific economies such as Vietnam, Singapore and South Korea.

Service Contraction: The virus outbreak in China has also hit the country’s services industry with reduced consumer spending hurt retail stores, restaurants and aviation among others. The services sector in the U.S., the world’s largest consumer market, also contracted in February, reason behind such contraction was a reduction in “new business from abroad as customers held back from placing orders amid global economic uncertainty and the coronavirus outbreak,” said IHS Markit, and hence every other country service sector is being affected too. Though every work can’t be done from home many companies have taken steps towards work from home which is working quite well.

Lower Bond yield, Concerns over the global spread of the new coronavirus has driven investors to bid up bond prices, resulting in yields in major economies to inch lower. U.S. Treasury’s, which are backed by the American government, are considered safe haven assets that investors tend to flee to in times of market volatility and uncertainty. Yields on all of the U.S. Treasury contracts fell below 1% in the past week a development not seen before. The benchmark 10-year contract also touched its historic low of around 0.3%. Such compression in U.S. Treasury yields could prompt the Federal Reserve to cut interest rates once again, several analysts said. The U.S Central bank made an emergency cut of 50bais points last week, making it almost 0.

India’s Central Bank, SEBI, IBA and the govt trying their best to recover from this financial crises as well as health crisis from locking down of country for 21 days, awakening people about this threat, “Janta curfew” on 22nd march, steps toward breaking the momentum/Chain  of spreading  of Coronavirus, economical decisions like cutting of rates, giving relaxation for Q4 and annual results, relaxation in EMI/ Premium payments, support to banking corporations for cooling down the volatility to save the financial crisis came as an outcome of coronavirus.

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March 23, 2020 Nifty50 closed at 7610.25, -12.98 % down Sensex down by 13%, first time in Indian Stock market history hitting two-time lower circuit (-10% when market is halted) in a single month eroded almost 14 lakh crores in a one day. RBI infused 31,585 cr too into banking via its repo window on Monday, but will it help anything?

Global economy will keep being affected by covid-19 until the antidote comes into full use globally or the virus has been counteracted.

What lies ahead  ?

                         

It Largely depends largely upon on how the Covid-19 crisis evolves. If the virus continues to spread across China, East Asia and other world regions, however, uncertainty and disruption will increase. Movement restrictions would continue and supply chains that are currently temporarily disrupted would decompose entirely, and factory shutdowns would inevitably follow, not just in China but also other markets and in the best-case scenario, the virus will be contained which looks possible in the near future or start slowing down in the early spring. People will resume work in globally and industrial activity will pick up again. That should bring relief to the global economy and the globe-spanning businesses that depend on it. The lagging demand will likely bounce back relatively quickly, particularly with the help of tailored government measures.

However, having all that said, I would like to end with the same place that we started with: CHINA.

Keeping the great Chinese philosophy of the yin yang in mind, everything with its negatives has its own positives too. It depends on our perspective whether we keep focusing on the negatives or see the positives in it. Inspired by this, I would like to end this optimistically that people are spending ample time with their families and understanding the value of nature. Less traffic is leading to less air and noise pollution. Cleaning of streets has become the biggest priority nowadays; people are trying to find their hidden passion at home. The ozone layer is supposed to be recovering again. Mother Earth is supposed to be healing again. With such observations begins the controversy whether the coronavirus is an actual threat to the world or mankind.

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Documented By    : Prasant Shukla

Edited By              : Sruty Saha

Reference              : Coronavirus Data