Impact of Coronavirus on World Economy: An Analysis

impact of coronavirus on world economy

None of us are any strangers to the Coronavirus. It has taken the whole world by storm and brought almost all countries across the world to a standstill. In this article, we shall analyze the impact of coronavirus on world economy, and the possibility of whether or not the virus is going to push the world into another major recession.

A careful analysis of the various factors affecting the world economy is crucial in order to understand the economic scenario amid coronavirus pandemic, and this has been discussed below:

Bearish Stock Markets

The stock markets of all major countries across the world have taken a huge dive in the past 2 months. However, the worst-hit countries have been the United States, the United Kingdom, and India.

The Dow Jones Industrial Index and the FTSE have seen their largest single-day fall since 1987 due to the Coronavirus pandemic.

The Nikkei has also fallen over 20% since the outbreak on 31st December 2019. The Sensex, which was earlier at around 40,000 had touched around 25,000 in April 2020.

All over the world, investors have lost billions of dollars because of the global plunge in stock markets. While there was some semblance of a recovery after the US announced a relief package of 2 trillion USD, experts have said that a very high degree of volatility can be expected throughout the course of the virus.

Unemployment

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The negative impact of coronavirus on world economy has also been compounded by the increasing rates of unemployment all across the world.

The major part of the negative impact of coronavirus on Indian economy has been caused due to the widespread unemployment that has been brought on by the lockdown. Several laborers and construction workers have lost their jobs since work-from-home is not an option for them. The same is true for all other countries around the world.

The United States has reported that the number of people in the USA filing for unemployment is now more than it has ever been in the history of the USA. This, coupled with the fact that several businesses are now shut down, has caused the IMF to say that the world is going to enter a recession that will quite possibly be worse than the recession of 2008.

Suspended Business Activities

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Suspended business activities are a phenomenon that is common to all countries worldwide. Third world countries that are primarily dependent on outsourcing for their employment are now finding themselves unemployed. Several major corporations have let off many employees since they cannot bear the burden of paying their wages at a time when there is no revenue coming in.

However, the worst-hit businesses have been the small businesses. They are the ones who will not be able to bear the brunt of suspended operations and accumulating inventories for such a long time, and will inevitably have to shut down at huge losses. This will further compound the problem since they will now become a liability instead of an asset to the governments, which are already stretched very thin for funds.

Lack of Funds with Governments to fight the pandemic

At times when the governments’ sources of finance and revenue are all exhausted, governments are finding it difficult to meet their expenses. This has led to several governments issue bonds in order to raise money from the public. These bonds have a high coupon rate to encourage people to invest in these bonds. The most notable example of this are corona bonds that are being considered by the EU as a means of raising the necessary funds. Since these are being guaranteed by several countries at once, it is quite probable that they may have a low-interest rate attached to them.

However, there is a negative aspect of issuing these bonds as well. Since generally, these bonds have a very low risk of default, they become a very attractive option for investors. This results in a further bearish situation in the stock market, as people are scrambling to cash out of their share positions and invest in these bonds instead. This will further hit the stock market and complicate the situation even further, thereby worsening the impact of coronavirus on world economy.

Airline and Hospitality Businesses

Several businesses that were dependent on tourism have also been very badly affected by the virus, deepening the impact of coronavirus on world economy. Over 100 countries have imposed travel restrictions on countries from around the world, thereby landing a huge blow to airline companies. This has also subsequently resulted in problems for businesses dependent on these sources of income for their livelihood, including hotels, tourist destinations, travel agencies, etc.

All these businesses have suddenly been stagnated and have no customers. This is expected to continue for the duration of the pandemic.

No “Safe” Investments

As the fear of the coronavirus looms over the people, even investments that were earlier considered safe have now lost huge amounts of money. The price of gold, which is usually considered a safe haven for investment in such situations, tumbled in March by over 300 USD. However, this has more or less stabilized now.

Even Crude oil, which is considered very stable, has lost huge amounts of money. On the 21st of April 2020, WTI crude oil traded for negative 38 dollars, as producers were paying customers to buy the oil products from them.

In summation, the impact of coronavirus on world economy cannot be understated. The whole world is dealing with the negative fallout from the virus, and it is doubtful if we might be able to get out of the consequences anytime soon. Even countries with a good recovery rate are facing negative consequences, like China for example. From the stock market to small businesses, everyone is suffering and even investments that were earlier considered safe like gold and crude oil have also declined. It is a scary and troubling time for the world indeed, and it remains to be seen whether a recovery back to the status quo is possible.

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