Business

The Disastrous Effect of Covid-19 on the World Economy

The pandemic caused by the Covid-19 virus has shaken the world economy. The worst thing is that it’s far from over. The virus affected almost all parts of the world, but not with the same ferocity.

Developed countries are facing a greater risk than developing countries. The virus is spreading everywhere, but not at the same rate. Health authorities remain observant. The last thing they want is the virus spreading in locations where the population density is high.

World Economy

Problems in manufacturing industries

Loss of work hours and productivity are the biggest problems this sector is facing right now. Some manufacturing companies have started laying off their employees due to making losses. And this phenomenon is worldwide, not restricted to any particular country. The problem has become so severe that the International Labor Organization (ILO) estimated that 25 million assembly line workers worldwide could lose their jobs due to the outbreak.

Transport and logistics

Next in line is the logistics sector. Global communication has come to a halt due to the fear of the Covid-19 virus spreading. Rail stations, airports, subways are mostly empty. Due to corporate offices allowing their staff to work from their homes, there’s hardly any passenger in buses and taxis now.

Lockdowns have made the situation even worse. Several nations have banned international tourists from entering, which caused commercial airlines to incur heavy losses. Globally, airlines have lost $29 billion revenue due to travel bans and fewer people flying to other countries. Transport for London reported they could lose up to £500 million. The Metropolitan Transport Authority (MTA) of New York City asked for a $4 billion federal bailout after losing 60% of its daily ridership.

According to the CDTA, a monitoring body responsible for overseeing New York City’s public transport, every mode of transport has lost 30-40% daily ridership. The situation is dire, and nobody knows when things will get better. If the spread of the virus doesn’t stop, losses would be immeasurable.

The share market collapse

Since late February, global markets have been receiving jolts after jolts. The situation is comparable to the 2008-recession. Some believe it’s even worse as people were living normal lives during the previous recession. But this time three nations have already declared lockdown and more could follow suit.

All the major indices are down from their previous highs. The Dow Jones Industrial Average is down 9000 points from February’s high of 29219. The S&P 500 is 28% down from its February’s high of 3373. For Nasdaq, the 10000 level was psychologically important which it failed to cross last month. The index is now down 27% from its 9817 resistance with support at 6900.

In the global market, FTSE 100 shed more than 2000 points from its all time high of 7500. Nikkei 225 has been performing poorly; it has lost 8000 points from its January’s high. The Shanghai Composite Index recovered from its 52 weeks low and is now trading at 2700-2750 level. They had to stop trading multiple times due to the index being on a freefall.

Gold and oil price

Surprisingly, the price of gold remained stable despite huge turbulences across markets. At the onset of the outbreak, gold ETFs saw people placing buy orders in droves. But with the crisis deepening, investors stopped allocating money to gold, silver, and other precious metals.

Oil price has gone down due to weak demands. Flight cancellation is the main reason behind the price of oil hitting the floor, but not the only reason. The price war between Saudi Arabia and Russia is also a reason. Brent Crude, currently down 50% from its early March price of $50/barrel is seeing little demand, which analysts believe could further reduce its price.

After Donald Trump announced he could intervene in the price war, WTI crude oil April and May contracts gained 56 cents and 43 cents respectively.

Governments announcing financial aids

Governments around the world have been announcing fiscal policies and direct financial assistance. Buoyed by such announcements, Asian markets made gains on Friday. The US senate unveiled a $1 trillion stimulus package to aid American businesses that are running on losses due to the Covid-19 outbreak.

China, South Korea, Germany, Canada and Australia rolled out policy measures to aid domestic businesses. Canada offered $27 billion as direct support to workers. China didn’t announce any stimulus package as such, but the People’s Bank of China said they’ll borrow $174 billion from commercial banks to keep the flow of money going. Australia offered $114 million to identify and help SMBs in distress.

Final words

The fiscal policies will give the ailing markets a nudge for sure, but how long the effects of the financial aid will remain is unclear at this moment. Hopefully, better days are ahead when the fear of the virus will be completely gone and the global economy will recover.

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