The coronavirus which surfaced in seafood & poultry market in China in Dec-19 , has proliferated in other parts of the world and has infected more than 192 countries. The impact of coronavirus is having a discerning effect on the global economy and has policymakers scrambling around to find the right solution to the enigma that is staring us right in our face. Henceforth, Asia pacific nations such as China & South Korea shows that right policies (Quarantine, Social Distancing & Extensive Testing) can make a difference in fighting the disease & mitigating its effect. However, these measures come with severe economic trade-offs.
Impact on GDP Growth: Worse than Y2008-09
If the economy is growing, that generally indicates more wealth & more jobs. It’s measured by looking at the percentage change in GDP typically over 3 months or 1 year. With countries imposing a quarantine and a lockdown to slow the spread of the virus, world economy is going to grow at its slowest rate since Y2009. More than 80 countries have some form of travel ban or flight suspension.
Although, it is early to measure the impact of the scourge of Covid-19 on world economy, it would not be far-fetched(Under current situation of lockdown & travel bans) to imagine a recession at least as bad as the great depressions of the Y1929 &Y2008. A laconic look at the nosediving GDP estimates (Exhibit-1) across various economies would corroborate the notion.
Impact on various Sectors:
1. Aviation: IATA, in its recent publication has estimated the total loss to global aviation to be around $113B . During Feb-20, IATA published a report indicating a revenue loss of $29.3B, based on a scenario that would see the impact of coronavirus largely restricted to markets associated with China. However, now the virus has impacted more than 190 countries and hence the total loss is estimated at $113B or 19% of the total revenue of the aviation industry in Y2019.
Global daily flights were down 20% in seven days to March 22nd compared with the same period in previous months reflecting the collapse of travel and tourism as a result of the pandemic. Many tourism dependent economies face an existential threat.
2. Retail: Retail sales follow a similar pattern &according to data from springboard, daily footfall fell more than 70% in US & Italy on March 18 compared with the same day the year before. Although it is still early to make a pronouncement but the signs are worrying. Even in India, due to lockdown of malls & other shopping centres across the country, there is already a 20% reduction in footfall Y-o-Y . There are 126 malls in eight biggest cities in India and lockdown across India has brought the retail space to a grinding halt.
3. Restaurant & Entertainment: Box Office Mojo is a website that tracks box-office sales. As per its recent report, on the weekend of March 15, cinema booking shrank by two-thirds compared with same period last year . China & Italy, countries with maximum spread of the virus, reported no data for the weekend. US cinema conjured $75.8M in seven days to March 16th, indicating a drop of more than 50% Y-o-Y. Restaurants all across the world have seen a nosediving footfall of diners. Of course, containment of disease is most important at this moment, but retail (Including Restaurant &Entertainment) & aviation would need significant stimulus from governments across the globe.
4. Manufacturing: China is world’s manufacturing hub and therefore a disruption in supply chain was expected after such a lengthy lockdown of China in Jan& Feb-20 . However, the entire situation has been exacerbated by the proliferation of virus in more than 192 countries.PMI (Purchasing managers’ index), in most major economies, has slipped to below 50. Any number below 50 represents contraction.
China’s PMI was 40.3 in Feb-20. Such a slowdown in Chinese manufacturing has hurt economies such as Vietnam, Singapore, Japan & South Korea as these were closely intertwined with the Chinese economy. Although most Chinese factories have started operations but are operating at less than 100% as a lot of the workers are antithetical on returning to work. In addition, spread of the Covid-19 and a subsequent lockdown of various economies will further lead to a slowdown of manufacturing sector.
India is also not immune to such a slowdown. India imports around $74B worth of goods from China and as most Chinese factories are operating at well below their true potential, most Indian manufacturers were struggling to get RM from China. But recent announcement by Indian premier, Mr. Modi, of a lockdown of three weeks starting from 24th March-20 would surely mean that most manufacturing companies would find themselves deep in red as and when they re-open.
One doesn’t need to be a clairvoyant to understand that Y 2020 would surely be a tough year!
Dr. Purnima Lala Mehta
Department of CSE