by: Tara Lohani
COVID-19 is a disease that had originated from Wuhan, China, caused by a newly discovered coronavirus. Labeled as a pandemic by WHO, the virus is thought to have developed from the Wuhan seafood market. The virus has made headlines since the beginning of 2020, as worry arises due to its rising death rate and increasing international spread.
Stock market effect
The virus has had a severe impact on stock markets: the Dow Jones Industrial Average (or just simply referred to as the Dow) and FTSE (Financial Times Stock Exchange) have witnessed the biggest one-day declines since 1987. The FTSE-100 is a UK-based index that monitors the stock performance of 100 of the biggest companies listed in the UK market currently and has sunk by 5.4% (313.31 points). The Dow is a US-based index and monitors the stock performance of 30 major companies in the U.S. Central banks in several countries all across the world have cut down on interest rates, in an effort to stimulate economic growth. Lower financial costs increase the chances of investing and borrowing.
Effect on the US
The U.S has suffered immensely under the coronavirus outbreak, with daily life almost coming to a standstill: as is the situation in every other country exceedingly affected. Nearly 31% of Americans have seen hours and income reduced, 18% have been laid off, and 10% have had to close down businesses: either temporarily, or permanently. Last week, the U.S. announced that over 3.3 million people had filed for unemployment - the highest number since 1982.In order to face this crisis, the U.S has introduced a $2.2 trillion relief package.
Impact on travel
Suffering most ardently under the coronavirus outbreak is the traveling industry. Due to the severe traveling restrictions enforced, as well as the policy of ‘social distancing’, airlines have begun losing business, and in an effort to increase consumer demand, have begun cutting prices. Several have canceled business, while some continue to function, although the drop in airline traffic has been huge. Tourists canceling holidays have affected countries such as Thailand, in particular, the Phuket province, where about 56% of the total employment is related to the tourism industry. Restaurant bookings and reservations have fallen by 82% in the U.K, 84% in the U.S, 86% in Ireland, 90% in Germany, and 94% in Canada.
Effect on China
China has faced an industrial slowdown, as production has fallen by 13.5% in the first two months of 2020. Chinese car sales have dropped by 92%, as companies such as Tesla are reverting to selling cars online, due to the inability of customers to travel to showrooms. The urban unemployment rate has increased by 6.2%. Chinese exports fell by 17.2% between January and February, and demand from other countries decreased in an effort to reduce contact. Since China is currently the world’s largest exporter, an adverse effect on its production influences economies such as Singapore, which is a major trade partner and overall dependent on trade, being a port city. The effects on major Asian countries are expected to resemble the 2008-2009 global financial crisis. Tourism is heavily impacted, and the GDP of Asian countries can be profoundly affected by it. Countries such as India, which may not have as strong trade ties with China, will still experience a shift in GDP growth. India's central bank has begun to cut interest rates, while its GDP growth is already at a decadal low.
Decrease in the price of oil
Oil is at its lowest price since June 2001. Demand for oil is further expected to decrease in 2020. Although the coronavirus has affected several markets such as coal and gas, its effect on oil has been critical, due to the standstill of people and goods moving around, reducing the need for transport fuels. Members of the OPEC (Organization of the Petroleum Exporting Countries) have discussed a cut of 1.5 million barrels up until the end of June. However, the agreement failed to be carried out, leading Saudi Arabia to cut prices and increase output, in a bid to harm Russia for failing to agree to meet the production cuts. Although lower prices should boost the economy of countries dependent on oil imports, a drastic decrease in activity has had an opposing effect. Since the U.S markets have begun increasing energy production in the past years, this makes it vulnerable to price declines.
Scientists are struggling to reach a definite understanding of the coronavirus and how it spreads, and due to a lack of testing and reporting, the actual figures of the total number of cases may be much higher than the given 200,000. Overall, the future global impact of COVID-19 depends on the actions taken by countries over the next few months, how much economic support governments are willing to give, and how exactly it is contained.
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