With COVID-19 wreaking once-in-a-century devastation, the world economy is set to spiral into a recession worse than the one witnessed a decade back. The recession, a Foreign Affairs report said, is likely to be the worst since World War-II and likely to wipe off millions of jobs across sectors and billions in capital.
The novel Coronavirus, which the world first got a whiff of in December, has till now taken more than 53,000 lives across at least 44 countries and has infected close to a million people. China, Italy, the US, the UK, Italy, and Spain—all of which boast of a cutting edge health care system—are the hit.
The fallout of the current crisis will continue for months, and its aftershocks will be felt for years to come, experts have warned. The crisis has sent annual budgets of the countries into disarray as all of them are forced now to scamper for enough supplies of medical equipment, putting everything else on the backburner for now.
The virus, the enormity of which can only be compared with Spanish Flu in 1917-1919, has sent economies into a vicious vortex wholesale, but there are a few industries that are set to bear most of the brunt.
- Banking, Financial Services and Insurance (BFSI)
The banking and financial sector industry is expected to be one of the more badly-hit industries during the current crisis. Countries across the globe have put their cities into complete or partial lockdown. This has severely strained the supply chain and put the retailers’ bodies and manufacturers into a tight spot. The fall out of this will be seen during the repayment of small and long time loans which these industries rely on to keep their businesses running.
Recently, the Confederation of All India Traders appealed to the Indian government to give them a stimulus of Rs. 5-7 lakh crore and issue a moratorium on repayment of loans for at least three months. These sentiments in the market show the cash crunch the retail traders and common men are expecting to face in the coming months, which they plan to set off, as much as possible, by deferral on loan repayments. Similarly, the instant personal loan sector, which has been witnessing a healthy growth rate in India, is bound to suffer as well.
It is not only the businessmen, but job losses in other sectors complemented with salary cuts will also force people to tighten their pockets, an immediate consequence of which will be seen in the loan repayments. The Indian government, too, has directed banks to defer taking installment on home and other loans for a period of three months. It is merely a direction, and its compliance remains with the discretion of the bankers. And the impact of this directive on short-term personal loans remains to be seen. However, as things stand, the banking institutions, with reduced spending and concomitant cash freeze, are in for a dry patch ahead.
As the virus reached 190+ countries in the last two months, several nations, including the US and India, have banned flights. COVID-19, which the economies thought was only a local concern for Chinese, is no more one and has taken countries en masse with surprise with the speed and virulence with which it has spread. The suspension of air travel done in a bid to contain the virus has spelled a doom of several airlines. The International Air Transport Authority (IATA) has projected a loss of business of up to $113 billion in 2020 alone, which is one-fifth of all the revenue earned last year.
According to a report, faced with reduced air travel by passengers, several airlines have cut their runs heavily. The Cathay Pacific, which is based in Hong Kong, slashed its schedule by 65 percent for the March and is expected to continue with more cuts in April and further. As per a report published by the International Civil Aviation Organisation (ICAO), airlines are projected to cut 37 to 47 percent of their seats offered in the first half of the year, reducing the overall passenger travel to anything between 401 and 528 million passengers.
The grounding of flights is likely to result in a loss of US $ 88-116 billion to the airline industry. According to the same report, since Coronavirus was declared a pandemic and a health emergency, by March, about 33 percent of total flights globally were grounded with countries like India, and Italy had suspended all their air travel.
- Fast-Moving Consumer Goods (FMCG)
With people confined to their homes during the lockdown, the demand for consumer goods has reduced drastically. The biggest FMCG brands have announced massive cuts in their production and are continuing with a much-depleted workforce. Most brands are forced to suspend their production because of severely curtailed supply chain and near elimination of distributors. The measures have resulted in many of these brands shifting their focus to only the essential commodities and healthcare equipment.
Since the lockdown, FMCG giants like Hindustan Unilever, Marico, Dabur, Nestle, and Emami have either scaled down their manufacturing or have entirely shut down. The lockdown has forced businesses to recalibrate their priorities in an unprecedented way. ITC has suspended the manufacture of cigarettes—its biggest revenue generator—and has shifted its focus on essential items. Industry insiders have predicted that the lockdown may shape the post-COVID market in fundamental ways, with a more sharp turn to e-commerce and the emergence of sophisticated and novel healthcare and hygiene products.
- Oil, Petroleum and Natural Gas
An otherwise indispensable commodity, with travel bans across the world, the oil, in all its forms, has seen a drastic decline in its demand.
The oil price crash began with the breakout of the virus in China. The country is the biggest exporter of crude oil in the world sent the oil prices spiralled when it entered an economic slowdown. The prices of crude oil have more than halved since January as the virus spread to many other countries. The International Energy Agency (IEA) in a report has predicted that demand for oil has come down this year, the first time in a decade, due to Coronavirus. The report projected demand of 99.9 billion barrels this year—a decrease of 90,000 barrels from 2019.
The drop in demand and thus, prices are also a result of a non-Corona factor. The increased production due to a fall out between Russia and Saudi Arabia—two major oil export countries too has contributed to a decline in prices of the crude. Recently, a standoff was in play between the two countries over the question of a drop in production of oil, a cut in which was proposed by Saudi Arabia, given the current slowdown, but was refused by Russia, which went on extracting with its usual capacity. More recently, US President Trump seems to have averted the standoff, but only temporarily.
With economies in a literal standstill, there is predicted a decline of almost 20 million barrels per day– one-fifth of total demand—in April alone, which will further cause the prices of crude to come down. Some experts predict that the price could touch as low as $5 per barrel, a catastrophically low amount that will jeopardize the entire global economy.
- Travel & Tourism
An obvious casualty during the lockdown is tourism. According to a report, the COVID-19 slowdown may cause 50 million to lose their jobs and shave off 10 percent of the global GDP. Another prediction by Mobility Market outlook said that recession might cause a drop by 17 percent in total revenue generation by tourism worldwide. An actual black swan event, the Corona epidemic may reduce the tourism revenue to US $568.6 billion as against the original forecast of US $712 billion.
Italy alone, due to being the worst hit of all countries, may lose its tourist traffic by 28.5 million this year. The country, a tourist hub for all its ancient sculptures and buildings, has lost the most number of people during the pandemic so far.
The impact of the pandemic on the tourism industry was evident when China witnessed a more than 30-58 percent decline (varying according to region) in its travel bookings after the disease became truly viral in February. The bookings, which rose in the first half of January because Chinese New Year, dropped sharply between January 20 and February 9 as pandemic became evident. There was a decline of 64 percent for those wanting to travel to the Americas and 58 percent in the case of Asia Pacific.
Barring a few cases among nations (China, Korea), the virus spread is showing no signs of abating even today. Hence, as it spreads more, the governments across the world will be moved to clamp stricter measures resulting in little less elbow room for the industries grappling downed sales and depleting revenues.
It has been suggested that a fillip in the form of a stimulus package may revive the economies once we are over the other side of the crisis. Such a move may help industries make a foothold in the market and get back the lost customers, but as of now, the pandemic will continue to sap more of our resources, making the businesses to adopt novel ways to sustain themselves in the market.
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