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COVID-19: Analysing The Downturn Of The Global Economy

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Novel Coronavirus
 Admin  April 25, 2020  General  0

The onset of the second decade of the 21st century has been anything but promising for the humankind. Never in its history has humanity faced such a crisis that has brought down the world on its knees. SARS-CoV-2, or commonly known as "COVID-19," has been at the centre of it all.  

Declared as a Global Pandemic by the World Health Organization, over 24,06,745 cases of the virus infection has already been reported & confirmed from 213 countries and has claimed the life of 1,65,257 as of 20th April, 2020. However, we must understand that COVID 19 has only fastened & magnified what was to come over the world as a "Global Recession”.

The year 2019: When it blinked "Red"

Global Corporate Debts had been critical financial data that have had all the economists worried since the great recession in 2008-2009, and it reached epic proportions in 2019. The global corporate debt surged $7.5 trillion in the first half of 2019, taking the overall figure above $250 trillion as per the report released on 14th November 2019 by the International Institute of Finance.  

The surge was led by US & China, accounting for over 60% of the increase. The IMF (International Monetary Fund) described this as a financial "time-bomb" and also suggested any real economic slowdown could be brought by the corporates struggling with their interest payment.

Sino-American trade war has been the most definite precursor to the economic meltdown. Due to various trade tariffs imposed by the US on China on the backdrop of theft of intellectual property, the cost of manufacturing skyrocketed, leading to higher prices for consumers, which soon started to take the turn of decreased consumerism leading to the onset of the recession.

The Outbreak Of Novel Corona Virus Cov-19

The New Year brought in the news of China reporting a cluster of cases of pneumonia-like disease spreading across rapidly in the business district of Wuhan. COV-19 was finally identified.

Merely within a fortnight, the first case was reported outside the borders of China. Soon enough, it was confirmed that the disease had human-to-human transmission, and by the end of January, it was quite clear that the spread had reached enormous proportions forcing the WHO to declare it as a Global Pandemic.

The only way to be safe from this vicious virus was "Social Distancing" and the world population being over 7 billion the only way to achieve that was “Lockdown” and “Home Quarantine”.

COVID-19 Corona Virus & The World Economy

With almost the 3rd of the world under some lockdown, economy as we know it is deep diving at an alarming rate each day. The global market is on the verge of breaking point. 

  • Global Economy:

The stock markets across the world have nosedived with America’s FTSE 100, Dow, and the S&P 500 fell 9.5%, and the Nasdaq ended 9.4% lower, while losses on the UK's FTSE 100 wiped some £160.4bn off the market. In France and Germany, indexes cratered more than 12%.

Source: https://www.bbc.com/news/business-51829852

The Dow Jones Industrial Average sank 2,352 points, or 10%, its most massive loss since its nearly 23% drop on 19th October 1987. The virus outbreak showed a drastic impact on other stock markets in the world. 

Stock markets in Russia (36%), Brazil (36%), France (30.35%), Germany (29.43%), Argentina (29.31%), UK (28.12%), NZ (10%), Sensex (19.51%) and Nifty (19.83%) have fallen drastically from January 31, 2020 to March 12, 2020. Australia is already heading for recession, with the stock market falling by 7.33%.

Source: https://www.businesstoday.in/markets/global-markets/coronavirus-fears-shanghai-composite-index-dow-jones-sensex-nifty/story/398204.html

Stocks in Asia saw the steepest fall with Japan's benchmark Nikkei 225 index closing 4.4% lower. China saw a significant dip as the Chinese GDP fell by 6.8%, and foreign trade declined by 6.4% since the outbreak. With a few new cases being reported, the Chinese economy is trying to make a full recovery.

India's BSE is losing as many as 12000 points in the past two months, diminishing investor's wealth by the millions. Amid the already crumbling economy, IL & FS crisis brought in a significant credit crunch for the NBFC industry leading to stricter norms for lending across the board. The credit crunch had a massive effect on the automobile industry, showcasing the diminished purchasing power.

  • Production & Manufacturing: 

Major manufacturing industries have been working with low or no staffing, which in turn has directly impacted the manufacturing & production of consumer goods. With international travel restrictions by over 100 countries, the situation is adding to the constraints of manufacturing across the world.

The Global Slowdown had already set in before the COV19 virus took over the world, which in turn suggests corporates with already high debts and obligations to meet would have very tough days ahead with the disease showing no signs of slowing down soon. The ugly signs have already started showing with US reporting 7 million job losses in just 14 days up to 3rd April 2020.

Manufacturing firms are dependent heavily on imports of components from various countries, and with the great lockdown in place, small and medium sized firms run the highest risk of going into bankruptcy.

  • Financial Markets:

Disruptions in production would stress companies, especially those that have constrained with its working capital or liquidity. These might not be correctly anticipated or analysed by the traders in the financial markets leading investors with unprofitable positions. This led to panic selling across all markets around the world by the investors to park their money in more stable investments.

The IMF has previously equated the global economic meltdown of 2020 to the great depression of 1930. According to a spokesperson from the UN has estimated global economic losses could reach up to $2 trillion. However, predictions have almost always been surpassed in the financial world. With all commercial activities on hold, time would only be the best storyteller.

With major governments around the globe announcing stimulus packages for the economy to be back on its feet once the storm is withered, it cannot be denied that the world now would have a new world order before & after Nature showed us our place.

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