The Covid-19 and the Global Economic Fallout

In just a few months, the epidemiological threat, Coronavirus (Covid-19) has marched its way across the globe, infecting half a million and killing thousands of people globally. In order to contain the virus outbreak, nations have implemented draconian measures, from complete lockdown of cities to compulsory social distancing. Joining the fight against the outbreak, many multinational companies chose to close their stores and halt their services, threatening the livelihood of many employees.

The massive plunge in Dow Jones Industrial Average (DJIA) tripped key circuit breakers and limited or halted trading several times in a month signalling an unprecedented sign of panic selling. The initial bullish market overnight became bearish as investors rushed to sell their stocks to cut losses. Failure of the first US stimulus package to tackle the impact of the pandemic further brought gloom and doom to the stock market. Despite so, the economic fallout due to the pandemic is more than just a stock market in dismay.

Disrupted manufacturing and global supply and demand chains

According to the United Nations Conference on Trade and Development, China is the source of 19 percent of all the manufacturing supply chains worldwide. Many countries import more intermediate goods from China as components to complete the final product before exporting it overseas. Any disruption to these manufacturing supply or demand chains can massively create a domino effect on the world. Due to a massive lockdown in China to stem the outbreak, supply lead times and supply and demand of goods dropped drastically. In February 2020, China’s official manufacturing purchasing managers’ index (PMI) slipped to 35.7, a contraction sign in the sector activity. This has led to Korea’s automobile manufacturer, Hyundai’s suspension of its production as the company was unable to procure parts from their Chinese counterparts. Concomitantly, Apple released a quarterly investors update that a decline in market needs is a challenge the company faces apart from the supply of goods. Despite China’s seemingly triumph over the virus,  the manufacturing industry remains affected due to overseas demand slump and cash-strapped businesses.  Contrary to popular beliefs that China factory productions would have resumed full throttle, factories in China are only running at 50 to 60 percent capacity, with low demand as one of the myriads of reasons. 

Aviation and tourism grind to a halt

With travel ban and restrictions, the travel and tourism industry take the hardest blow from the virus outbreak. This is especially so for tourism-dependent countries like Indonesia, Philippines, Singapore, Thailand, and Vietnam that are crippled by various movement controls. A forecast by ING revealed that the Asia economies could lose approximately $105-$115 billion in gross domestic product (GDP) this year. Thailand and Vietnam, which have 21.6% and 24.7% of their GDP respectively contributed by travel and tourism (Refer to Figure 1), are likely to bear most of the brunt.

Covid-19-and-the-global-economic-fallout
Figure 1 – Contribution of Travel and Tourism to GDP in 2018

According to the estimates of the Vietnam National Administration of Tourism, the economic loss in tourism will range between US$5.9 billion and $7.7 billion. As reported by the Tourism Authority of Thailand, the drop in Chinese tourist numbers from January to April alone could cost the Thai economy US$3.05 billion.  In the same vein, airlines globally have grounded flights due to waning flight passengers. The International Air Transport Association (IATA) projected a sum of US$150 billion and US$200 billion (S$213 billion to S$285 billion) worth of reliefs and bailouts in order for the global airlines industry to survive this pandemic. Smaller or budget airlines continue facing the risk of being merged or acquired, potentially changing the dynamics of airline industries.

 Growing green economy

As the old saying goes, you should “never let a good crisis go to waste”. This moots the idea that every crisis brings opportunities. The pandemic for once may bring about positive green transformations that stick. It is well-known that climate change is the biggest threat the world faces huge negative economic consequences that are part of this threat. Despite various governments’ mitigation efforts, green initiatives still face certain roadblocks in the private sectors. In a bid to influence more green operations in private businesses, lawmakers in the US are making aids and bailouts with strings attached. In return for $40 billion in grants, the proposal for airlines is to cut emissions by 25% within 15 years and 50% by 2050. This move is favoured by climate advocates to avoid the past mistakes where climate action lost its momentum after airlines received bailouts during the 2008 financial crisis. With pandemic aids on condition to advance climate objectives, longer-term emissions goals can be met, and future economic damage can hopefully be mitigated.

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Resiliency in times of turbulence

Economic intricacies of a globalised economy have complicated the challenges for businesses to deal with in unprecedented events like pandemic. However, some changes in strategies can help businesses weather the storm and emerge on the other side stronger.

Singapore – Tap onto government grants and tax reliefs

Since the virus outbreak, countries have been ramping up on various initiatives and schemes to support businesses. Notably, small and medium-sized enterprises (SMEs) that are more at risk of falling behind because they are not investing enough to deal with the advent of new technology and disruptions. In Singapore, some of the measures (Refer to Figure 2) include wage subsidies to help businesses keep their workers, deferments in income tax payments for companies and self-employed persons for three months, as well as cash payouts for eligible persons.

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Figure 2 – Singapore Government Schemes for SMEs

Embracing e-commerce

The ability to survive and thrive during unpredictable and unfavourable events is resilience. This mindset is key to building a stronger financial safety net in your business. Unlike the traditional brick-and-mortar retail shops that face closures during the lockdown, e-commerce allows businesses to open indefinitely and customers to make purchases anytime. Businesses with e-commerce platforms are seeing a spike in their sales due to shop curbs. Research highlights that this change in consumer behaviour may signal a conversion of traditional retail shoppers to e-commerce consumers even after the pandemic. This provides an even greater impetus for companies to embrace e-commerce and continue serving their customers via digital outlets. While new entrants to the virtual retail platform may find the setup process intimidating, here are some beginner tools that you may consider to kickstart your e-commerce business journey. 

Looking at the world from a divergent view

As the pandemic deepens, the world falls quiet from fewer or no social activities. Major economies are paralysed with containing the virus, resulting in a brutal drawdown in global financial markets. Mechanical models of recession risks have ticked higher due to the high uncertainty of unfolding events. Covid-19 is one of the many challenges that can significantly disrupt the global financial market. Businesses must be prepared and equipped to face adversities as they move beyond the current pandemic. Collaboration with industry experts like Desfran can offer you suitable corporate service advisory solutions that are designed for businesses to achieve desired outcomes. Contact Desfran today.

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References

A Timeline of How the Wuhan Coronavirus Has Spread—And How the World Has Reacted, Time.com

Tracking The Spread And Economic Impact of The Coronavirus, SPGlobal.com

How will the coronavirus affect the world economy, DW.com

Economic implications of the coronavirus, Economics.rabobank.com

Coronavirus outbreak: the story so far, Pharmaceutical-technology.com

Lead Your Business Through the Coronavirus Crisis, Hbr.org

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