The economic impact of coronavirus
Not only are biological consequences being seen from this pandemic, but economies and markets have been severely impacted, ranging from the closing of businesses to billions being wiped off stock markets on an apparently weekly basis. So what has been the economic impact of Coronavirus and how bad can it get?
Global Growth
The first major economic impact of the pandemic has been its effect on global growth. The pandemic has essentially led to the standstill of many nations, in particular in Europe and this has a direct effect on growth forecasts for countries. With companies temporarily closed and people still for the most part confined to their homes to minimize the spread of the virus, national economies are being ground to a halt with consumer spending drastically decreasing.
For example, people are no longer going to Starbucks to buy their coffee on their way to work, restaurants will be empty due to the restriction on crowded places, sporting fixtures are postponed or behind-closed-doors leading to a loss in consumer spending from transport to games to spending on food. All these individual things add up and play a significant role in impacting consumer spending which fuels economic growth.
Furthermore, investment nationally and globally will be significantly impacted by the uncertainty, leading many firms to postpone planned investment while this pandemic continues, hindering the creation of potential jobs to economies. According to the OECD, The world’s economy could grow at its slowest rate since 2009 this year due to the Coronavirus outbreak.
Individual Sectors
Other than economies, individual sectors will be heavily impacted by the outbreak of the Coronavirus, most notably Tourism & aviation, hospitality, and manufacturing. Focusing on tourism and aviation we see arguably, the most heavily impacted industry. With more than 100 countries imposing travel restrictions, airlines cutting flights and tourists cancelling holidays and business trips, the tourism, and aviation industries have been hit significantly. Airlines are currently facing a sudden fall in revenues due to restrictions on flights and a fight to stay afloat with a sudden cut to their cash flow and this was most keenly felt with Virgin Atlantic not long ago asking the government for support to the sector with an emergency credit of up £7.5bn.
The substantial economic impact on the aviation industry has seen airlines forced to permanently or temporarily reduce staff. Other airlines have followed suit with Ryanair and EasyJet grounding most of their fleets, while BA owner IAG is to cut capacity by 75%[1]. It isn’t just airlines who have keenly felt the impact, countries who rely heavily on tourism are starting to and will increasingly over the coming months feel the economic impact from the Coronavirus on their tourism industries.
Countries dependent on tourism will see the biggest impact from the lack of tourists and the purchasing power tourists bring with them. Countries such as the Maldives and Bahamas, where tourism makes up 41.5% and 19.4% of their economy respectively, will face rising unemployment and reduced income from the lack of tourists, increasing the likelihood of a recession for them. However, even nations where tourism doesn’t make up as much a percentage of their economy will still be significantly impacted like the UK for example where tourism generates £106 billion and employs over 2 million people.[2]
Stock Markets
Last but not least, the Coronavirus outbreak has caused significant upheaval and carnage on global markets. Global stock markets such as the Dow, S&P 500 and the FTSE 100 have had some of their worst weeks in history with billions wiped off due to the uncertainty and fear over Coronavirus. Consumer confidence has been dented and this thus leads to a fall in consumer spending and thus falling revenues, profits and dividends for firms. This will culminate in stocks on these markets falling in value. Due to uncertainty surrounding the markets, comments on social media platforms alter each day throughout the hours and can in fact have an impact on stock price fluctuations. Modern technologies now allow for real-time market sentiment monitoring platforms like StockGeist.ai to observe said changes in the market psychology. People also have the chance to enhance their own project with integrating stock news sentiment API.
However, the widespread impact of the virus, tied with its growing spread and lack of solution has sent markets into overdrive where we have seen major swings and high levels of volatility. For context, in the second week of March, the Dow saw its biggest one day decline and the S&P 500 (a stock market index) wiping out its entire gain for 2019 within 2 weeks and is down 30% from it's all-time high. While there have been various cases in the past of such decline and volatility e.g. 2008 crisis, dotcom crisis, there has never been a situation like this where entire economies are shutting down and more importantly, a crisis where we don’t know the full extent and where the end will be. With the virus not fully piercing through (statistically) in countries such as the UK and US, the potential for further drops is high. While stock market crashes may seem like something not important to the everyday person, there can be knock-on effects. Millions of citizens’ pension funds invested in stock markets, so severe declines in stock markets can see billions of people’s pensions and savings wiped off from falls in markets.
