Never miss another update

Subscribe Today!

COVID-19 And It’s Inevitable Turmoil on Global Economy

A global crisis

China was the first country on the frontline against the novel coronavirus, COVID-19. The virus surfaced in late December in Wuhan, Hubei province, and since then, it has slowly crept across the planet. COVID-19 has taken almost 15,000 lives. China’s strong economy was the first to be hit by the effects of the virus.

As summer approaches, governments around the world are facing a similar problem. Global leaders are pushing for more international cooperation; however, this may not be possible for China yet. The country is still facing serious domestic issues even as the virus is withering away. China is trying to rebuild its economy by getting businesses running again, and since last week, over 60% of businesses that provide services have resumed their operations. However, there is still a struggle in consumer industries, such as the food and beverage industry. Another gap that remains persistent is within the manufacturing business since many factories remain close.

Turmoil continues

The struggle isn’t over for China, and the country will not be able to recover without foreign capital.

“Although China might emerge from the coronavirus before others, it is still a long way from returning to normal, and slowdowns in other economies will ripple back to China and dampen demand,” Stephen Olson, a research fellow at the nonprofit Hinrich Foundation, said in an email. “China’s imports are unlikely to return to pre-coronavirus levels any time soon.”

Policymakers should take an example from China and prepare for the inevitable decline in economic growth that will be caused by the virus. The anxiety of an upcoming global recession from the impact of the virus. China was able to fight the virus through strict containment, although this did come at a substantial economic cost. While China took the right steps by virtually shutting down the entire country, it did not come without tough economic compromises.

Stricter measures

China implemented strict mobility constraints at both local and national levels by employing severe curfews, closing businesses, and reducing the movement of citizens to almost zero. While the outbreak brought horrifying human suffering, it also brought significant economic implications. China’s tough first quarter of 2020 is a somewhat forecast for the coming year. We witness a series of sudden halts in China’s economy that led to a full-blown shock, which in turn practically ceased industrial and retail products as well as sales. The shock lead experts to compare COVID-19’s toll to the Great Financial Crisis in 2007.

The stock market wrestled in turmoil as the S&P closed 30% from the previous month. Asia, Europe, and the United States have slashed interest rates to help alleviate economies that were painfully hit by self-isolated consumers, damaged supply chains, and halted business. In just three months since its birth, COVID-19 has affected global markets, financial institutions, businesses, and of course, individuals.

“Stability in China in and of itself isn’t good or bad for the world. What’s good for the world is if China creates demand for the world.”

To diminish the impact of the economic shock, the Chinese government turned to assist the most vulnerable by renouncing utility bills and social security fees as well as amplifying the production of health equipment and other hospital facilities. The government also injected the economy with funds to help support the banks and businesses under pressure. But relief tools come with their own set of challenges. Giving debtors extra time to meet their financial obligation can lead to other issues further down the line.

Europe is now facing the same trouble. The first on the battlefield against COVID-19 was Italy, where to date, over 5000 people have died, leading the country to request the Army to transport corpses to other cemeteries. In the U.K., the death toll is almost 300 people, but prime minister Boris Johnson has yet to impose heavy isolation meters to encourage people to stay home. There has been a surge of panic buying across Europe, and the United States, where shoppers were stocking up on food and hygiene products. To cope with the immense pressure on the economy, the European Central Banked rolled out new bond purchases worth 750 billion euros to help bring some relief to bond markets. The U.S. Federal Reserve followed a similar path by launching an emergency fund of $3.8 trillion to keep the markets going. The data terrifies economists who compare it to the Great Depression of the 1930s.

The battle with COVID-19 continues

Automobile manufacturers were asked to help produce medical machines like ventilators, while gin distillers turned to produce hand sanitizer to cope with the worldwide shortage. Most countries globally have banned entry from travelers, closed bars and restaurants as well as non-essential shops. Some European countries are even following Italy’s strict measures to implement a full lockdown, with restricted moved in order to encourage citizens to stay home in an effort to contain the virus once and for all.

Posted in ,

The Markets Today