The corona virus pandemic has surpassed 3.7 million cases all across the globe – and there are still thousands of cases confirmed every day – so, it does not seem like it is going away anytime soon. However, with lock-downs put in order, businesses are dealing with quite a lot of lost revenue. Unemployment is soaring up due to various businesses being forcibly closed, and the IMF says that the virus has instigated a global economic crisis similar to that of the Great Depression.
With people not being able to work, the US has reported that there has been a rapid decline in the GDP (gross domestic product) within the first three months of the year – and the numbers are still dropping. The GPD is down by 4.8% at this point – the lowest that is has ever been since the financial crisis of 2007-2009 – bringing their steady economic expansion to a sharp halt.
Restrictions and Supply
A variety of sectors all across the globe are currently being affected by the outbreak, with supply and demand increasing in several areas but decreasing in others. That being said, with the travel restriction put in check, the supply chain is no longer as easy to maintain. Airbus, for instance, has stopped their Tianjin production due to the restrictions, and several manufacturers such as Volkswagen and Toyota have also ceased activity.
Factories, big or small, have stopped their production – particularly in the areas that were hardest hit by the virus. There is a lot of demand going on – but not enough supply to actually meet that demand. International travel also led to a great deal of loss, as most of the global economy was reliant on tourism and actual social interaction to keep things going.
The losses do not only apply to companies in Asia. Businesses such as Disney, McDonald's, IKEA – and even Nike and H&M took a very great hit as the sections in Wuhan have been closed. Insurance can only cover so much, which is why there was a great drop in production.
Hard Hit in the U.S.
Out of the 5.6 million cases, the U.S. alone has on average of over 1.7 million cases at this point. This made President Donald Trump declare National Emergency – causing the unemployment rate to go higher than it has ever been. At this point, many people had found themselves forced to tap into their emergency savings. As we leave the third month of rent and mortgage furloughs, real estate may begin to see a decline. Landlords will find it hard to recover rent and though some states have protections for renters others may see mass eviction notices across the board.
That being said, even if the state of emergency had not been declared and social distancing had not been enacted, there would still be the issue of reduced supply chains from other countries. Since most countries are currently tending for themselves, and with the travel restrictions in place, it has been expected, there will be a great drop in equity prices in the following years.
As the economy has reopened in certain states and has transitioned into opening in others, we will have to identify what is the new normal and it's effects on the long term global economy. Some states saw a spike in cases from opening and there is prediction of a second wave. For the U.S this hurts because many industries were not prepared for the virtual world. A Facebook poll shows of 86,000 small businesses a third say they don't expect to reopen. With small businesses doing 47.5% of the hiring in the United States, It means there are many people that are going to be out of work for a while. We will not be able to conduct business the same way due to social distancing and service limitations, which also puts strains on already struggling businesses. This effects the global economy which America is the biggest consumer representing 26% of it adding up to about $12.6 Trillion dollars spent annually. The stimulus bills are set in 4 stages and hopefully they can keep the economy afloat as they have done partially so far.
This means people are going to have to look into new industries for employment based on the needs and what's trending up and/or find additional income streams. In the end, even with reopening it's going to take a while to get consumer confidence and the long term effects depend on how businesses adjust to this new world, how fast they adapt, how they take care of their employees and build consumer confidence because they're all interconnected.
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