How the COVID-19 will change the world
In recent weeks, the whole world has been living an epidemic of a new COVID-19 coronavirus also called the Wuhan virus or SARS-CoV-2.
Today’s article will look at the effects of this virus in the world of business and global finance.
Although virus mortality statistics and morbidity rates are not huge, global markets have responded to information about new outbreaks very dramatically.
It is known for a long time that financial markets are governed by psychology and fears about the spread of an epidemic that can turn into a pandemic – heighten these fears.
Media reports and medical expert statements – epidemiologists – change into investor uncertainty about the future of global economies.
The consequences of the COVID-19 virus epidemic for global economy
Stuck in factories in China and interrupted supply chains, they are a direct consequence of the introduction of quarantine and restriction of communication between China and the outside world.
The world economy is a set of connected vessels. In the 21st century like never before – economies affect each other.
Stopped factories in China that are unable to supply products or raw materials to economies around the world – are a significant problem because most of the production is done in Asia.
Emerging virus outbreaks in Europe and the United States are increasing concerns about a pandemic.
So the natural effect of these fears is the stock market drops because investors are afraid that having a pandemic will reduce world GDP by up to 50%.
The inhabitants of the whole world overwhelmed with fear will limit the consumption that drives the growth of world GDP.
Which sectors of the economy will suffer the most from the virus?
If we were to indicate the industries most at risk from the effects of a pandemic, it should be indicated: the tourist industry, restaurant industry, public transport, the entertainment industry – associated with mass performances, heavy industry industries and logistics.
Consumers who are the fundamental for business of all kinds because of fear of infection – will choose entertainment and staying at their homes.
It is obvious that we will give up foreign trips and local trips, visits to the cinema, theater and concerts of our favorite bands.
Even if the authorities do not ban mass events, people, due to their self-preservation instincts, will limit visits to this type of events.
Which industries will benefit from the COVID-19 coronavirus epidemic?
Regardless of whether the epidemics can be overcome quickly or it will take many months, we can already predict the effects that this new virus will have on economies and certain industries.
In the context of the labor market – Remote work should be expected to be introduced widely to eliminate large clusters of people.
Therefore, we anticipate the growing importance of businesses related to conducting teleconferences, electronic communications, 5g technology which is necessary to increase the bandwidth of ICT networks. We also expect gain in modern e-commerce platforms both B2B and B2C.
Home entertainment will definitely be the second industry to benefit from the epidemic. Staying at home we will choose streaming services instead of cinema, the turnover of game producers and food delivery services delivery will increase.
In summary, they will gain all those industries and industries that are able to provide us with home living and minimizing visits outside.
Pharmaceutical and biotechnology companies as well as manufacturers of disinfectants and protective agents will definitely gain in importance.
All types of survival training, the association of so-called prepers movements, will become much more popular.
What next with the coronavirus epidemic – possible scenarios
In general, the development of a coronavirus epidemic can occur in two directions, we will now consider both scenarios.
Scenario 1. The epidemic is stopped by inventing and marketing a drug or vaccine.
If a successful drug can be quickly developed for a new version of the coronavirus, even in the pessimistic case of infecting 70% of the population, mortality will decrease and the economy will recover from shock .
Despite this, the effects of the epidemic in World economy will be felt for many months or even years.
Companies which until now have been based on the production of localized Asia will strive to diversify or return to local production. Such a move will undoubtedly drive the price growth of final products because labor costs in developed economies of Western countries are much higher than in Asia.
Therefore, we predict global inflation at a high level. From an economic point of view, this is not a very bad solution. Moderate inflation is favorable due to the fact that we currently have negative interest rates both in the United States and in most European countries.
Of course there is also a risk of hyperinflation which is of course catastrophic to financial sector.
Return to production in developed countries is also a way to diversify the source of these revenues.
Scenario 2. The epidemic is slipping away and there is a pandemic in the world.
The second scenario is much more pessimistic and assumes that the authorities and health organizations will not be able to control the spreading epidemic.
If the global economy does not return to the former production and consumption paths, a reduction of world GDP by as much as 80% should be expected.
If new mutations appear, even an apocalyptic scenario is possible. However, it is difficult to point to potential effects and scenarios of events. Maybe in the next article we will argue about some considerations on the border of science fiction.