How is Coronavirus affecting global economic sentiments?
Published on : Jul-2023 Report Code : 3 Report Format : PDF
Many governments around the globe are beginning to lessen living restrictions and as many are gradually taking cautious steps outside their homes, the world and life people are returning to are very distinct from the one they left. With substantial new coronavirus cases and second-wave threats, any return to a new normal seems challenging for most markets and sectors.
The world economy, already ‘sluggish’ even before outbreak of coronavirus, is now compelled to suffer a ‘severe recession’ in 2020, said IMF chief Kristalina Georgieva and said the current crisis posed "considerable challenges" for policymakers in many emerging and developing economies.
Big economies, such as the U.S., European, and Asian economies, have become more fragile as progress has declined, various countries are now less able to survive shocks. The most likely recessionary possibility for some time has been an exogenous shock that hit the economies at a time of already present vulnerability. Severe shocks of exogenous demand and supply — such as conflicts, accidents, or other disruptions — push the real economy into a recession. Covid-19, exogenous shock has the greatest potential to exploit the global economy.
During the annual Spring Meeting of the International Monetary Fund (IMF) and the World Bank, the IMF Managing Director said a significant global recession was likely in the first half of this year. Early-affected countries such as China, South Korea, and Italy-have experienced significant contractions in industrial activity and services, exceeding the losses experienced at the outbreak of the financial crisis. The global economy is expected to start improving from the third quarter, as public health interventions are scaled back and the effect of policy support actualizes.
Manufacturers already dragged down in the last two years by the U.S.-China trade war, have again faced pressure as coronavirus spreads all over the world. Due to the Corona effect, the manufacturing sector has been hit in several aspects. Lower production, to begin with, owing to government orders more and more workers are evading or are incapable of coming into work, thus reducing the scale of operations, with consequent impact on quality, increased cost, and volumes of output. This adversely affects the turnover over a period which slows down to a crawl. The slower pace of banking activities, shortened working hours, crowded and overloaded lines of communication contribute to delayed cash transactions, thereby rising monetary risks. Logistics complexities lead to a cascading impact, transporters struggle not only to position vehicles for loading, they are now under pressure to adjust their quotations for the carriage of goods, as they also face lower attendance, with their operational risks sharply increasing. Suppliers to major producers tend to feel the pressure, and decide to withdraw, and play securely, to protect their interests, as their ability to bear risks is much smaller than their big clients. Finally, due to the many such interruptions, the end consumer often begins postponing non-essential orders by suspending their demands and detaches from the consuming processes. Supply-chain disruptions present an enormous risk in numerous industries, such as pharma, chemicals, medical supplies, consumer and packaged goods, and automotive and assembly.
The analyses by the experts and industry veterans at Fatpos Global revealed that the Covid-19 pandemic first affected manufacturers outside China who depend on factories in the Asian economic giant for the intermediate goods to produce their products. Yet, as authorities worked to contain the virus, Chinese factories halted operations for longer than anticipated. The medical devices industry in India has also taken on a blow. The country is importing consumables, disposables, and capital equipment from China including orthopedic implants, pads, syringes, bandages, computed tomography, and magnetic resonance imaging tools. Because of the current crisis in China, it is difficult for medical device manufacturers across India to procure essential raw materials and electronic components from the Chinese factories. While manufacturers in Europe and North America are struggling to step up their production capacities for PPE, they recognize that this is not an easy task. The key explanation is that their production is outsourced between 65 and 75 percent form Asian countries. In the initial stage, the outbreak of COVID-19 in China created a huge demand for PPE in the local market leading to the disruption of the supply chain for other nations. The global demand has skyrocketed with the spread of COVID-19 and the supply chain has not been able to fulfill that demand.
A larger number of manufacturing firms have been affected, as more countries implement shutdown measures. Many firms were forced to close down temporarily, while those remaining open-faced constraints in getting their supply of intermediate products and materials. A fall in demand for products, on top of that, intensified the problems facing manufacturers. As a result, factories from the U.S. to Europe and Asia registered production decreases over the last month. Global trade, which had declined already in 2019, is projected to be further encumbered this year. In its latest forecast this month, the World Trade Organization said that this year the amount of global trade could fall by 12.8 percent or 31.8 percent, depending on the direction of the global economy. "In both instances, by 2020, both regions will experience double-digit export and import reductions," the WTO stated.
Consumer sentiments are impacted by COVID 19 affecting the Economies
Weak consumer demand at the industrial and corporate levels is seen as a challenge to the growth of various businesses and organizations. Despite instances of reopening and reducing restrictions, net consumer optimism has diminished, and most customers expect COVID-19 to have a long-lasting effect. China and India remain the most hopeful while Japan remains the least positive, and many European countries have more customers skeptical about economic growth than hopeful. Many customers globally also expect COVID-19 to have long-term effects on their routines. Consumers in certain countries expect their finances to improve quicker, while more than half of consumers in many other countries still assume that their finances would be impacted for four months or longer. As wages have dropped and unemployment levels are increasing rapidly across the world and economic and business expectations are plummeting, consumers are spending on necessities and not on luxury categories. Worldwide, consumers continue to see the effect of COVID-19 on their incomes, with those most harmed by it in Brazil, South Africa, and India.
Overall spending intentions are reduced across two-thirds of the surveyed countries, and most groups across countries still display a net intention to cut spending – while more ambitious countries continue to predict higher spending intentions. Expenditure on food products and entertainment at home continues to show strong momentum. Consumers in more countries today also plan to increase spending on other general categories, such as home appliances and personal care. Chinese and South Korean customers are planning to spend more on buying other categories: food take-out and delivery, snacks, skincare, baby non-food items, health and wellness, and power. While overall spending objective stays pessimistic on most discretionary categories, today's skepticism about future spending on categories such as eateries, restaurant delivery, apparel, footwear, and electronic products is decreased. In China, spending aim is close to neutral in most parameters relating to non-travel. Consumers are switching to online and digital platforms as well as reduced channels of contact to get products and services. For many countries, including the US, India, South Korea, and Japan, the aim to shop more online across categories is strong. Across Europe and Latin America, there is a lower desire to buy more online.
This lower penetration is possibly due to the lower scope provided the limited infrastructure, which has restricted consumers' willingness to switch their spending in a large-scale manner. Consumers adopt and intensify digital and decreased-contact ways of accessing products and services across all the countries. Countries registered dramatic declines in retail sales as shutdown measures forced several shops to shut down during the pandemic and kept shoppers at home. Reported by some retailers, such as Amazon, an increase in online sales has failed to stem the overall decline. In all the countries less consumer spending hits each sector hard and with aggregate demand lessening, a vicious Keynesian cycle of low investment and high unemployment underpins an economy into a recessionary state (depending on how the virus is contained or treated). Economists have cautioned consumers may not resume spending even after the lifting of the lockout. That's evident in China's "slow progress" in retail sales, even after the country has allowed companies to reopen gradually. Economists warned that consumers may not resume spending even after lockdown measures are lifted. That’s evident in the “slow improvement” in retail sales in China even after the country allowed a gradual reopening of businesses.
Due to COVID-19, the financial markets have been under considerable pressure, volatility, and uncertainty. The COVID-19 pandemic is a serious health and humanitarian crisis that is threatening the global capital market industry's financial and organizational resilience. Volatile capital markets are the greatest challenge to business growth in financial services. The financial markets are currently continuously reacting to these shocks and are likely to remain extremely volatile for a considerable period; at least until the number of infected cases begins to fall across nations. With the reopening of some of the countries and the reduction of the restrictions, declining pessimism exhibits higher signs for future investment. Moreover, if the US, in particular, continues to see a spike in contaminated cases shortly, the global financial scenario could get much worse than a recession – far worse, in reality, compared to the collapse from the financial crisis of 2008-09. Despite the Fed and many other central banks in other nations taking immediate rate cuts, monetary policy-supported stimulus alone has a limited role to play in calming financial markets and resolving a pandemic like COVID-19’s systemic economic effects.
Throughout this crisis, the global framework of Capital Markets has been challenged with unprecedented volumes, the transition to fully electronic trading floors, remote trading operations, and the need to keep markets orderly and liquid. The industry has stepped up, accomplished, and been part of the solutions needed to mitigate the financial impacts, maximize access to credit and capital, and keep the economies of our world working. With Capital Markets companies trying to stabilize their industries, it is more important than ever for leaders to connect in an authentically sensitive, supportive, and positive manner with their employees and their clients. Almost all businesses are talking about how to improve the way they operate for the future
For many countries, including the US and China — two of the world's largest economies and consumer markets — the services industry is a key source of growth and employment. Globally, there has been a wider impact on the services industry, with companies in the shipping, real estate, and travel and tourism industries witnessing some of the greatest decreases in activity so far. Major FMCG companies are struggling due to a massive shortage of trucks to transport their goods. Although the government has allowed essential goods to be moved and delivered, availability remains a challenge as logistics are not moving at a fast pace due to many constraints in place. There is a scarcity of drivers as almost all of them have relocated to their hometowns. The inaccessibility of enough labor at loading and unloading points also hampers the country's logistics operations. There are a large number of day-to-day wage earners working hard to survive.
Countries around the world adopted extensive steps to control the emerging coronavirus that is impacting tourism and travel leading to complete closure of these activities, through absolute lockdowns, shutdowns of airports, imposition of travel restrictions, and complete sealing of their borders. As countries start to ease lockdown policies to kick-start their economies, all attention is on how international borders can reopen, encouraging business and tourism to resume.
According to Fatpos Global Analysts, the crisis demands unparalleled coordination between industry, civil, and public authorities. Regulatory authorities must realize the logistics industry as essential services for maintaining the smooth running of critical supply chains. It is time for companies to evaluate their supply chain risks and develop mitigation plans efficiently and effectively, such as exploring or combining alternative transport channels – small trucks, three-wheelers, two-wheelers, etc. for last-mile delivery of essential goods. Regional logistics companies should establish capacities at a short interval of time to adapt to the increase in demand.
This pandemic is a temporary state, but the time is tough for companies and businesses. When business activities resume, mass recruiting of distribution personnel will become an hourly requirement as pending orders along with the latest ones will further burden the logistics network following the pandemic. The logistics network must prepare for the sudden increase in consumer demand in advance once the manufacturing units return to action. A better network would be an absolute requirement for effective handling of the scenario.
Certainly, the outbreak will serve as a wake-up call for businesses across various industries to adopt business continuity strategies to better manage such unplanned circumstances in the future. Those businesses that have worked with outstanding operating criteria such as high efficiency, high productivity, well-trained staff, well-maintained equipment, etc., are expected to take-off faster than others in the future. Therefore the time after lockout could be an advantage for well-managed businesses, while it could be an uphill challenge for others. Good companies will establish recovery plans, while the not so good ones must establish survival plans. Firms need to drive new models with operating efficiency, cost-effectiveness, and durability at the core. The shift towards digital, analytics, data, technology, and cost resilience is more prominent now than ever before. The ability to adapt to several shocks of supply and consumption demonstrates the resilience of modern economies.
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