BY LARRY ALTON
As covid-19 puts the world into lockdown, world leaders, business owners, and members of the public alike are getting increasingly worried about the economic impact of the virus. It’s been said that the UK economy alone could shrink by as much as 20% by mid-2020, as the hospitality industry, such as pubs, restaurants, and theatres, is forced to close.
And this bad news isn’t restricted to the UK — Australia is headed for its first recession since 1991 while banks in America have slashed interest rates due to the growing concern over bills. Here, we’ll go through the different ways the global economy will suffer, and how it might be able to bounce back.
Economic growth slowdown
Businesses around the world, across all industries, are feeling the strain of the current wave of coronavirus. Travel bans are being imposed in almost every country, entertainment events have been cancelled on a global scale, and governments have called for an end to large social gatherings altogether.
For the economy, the pound has dropped to its lowest worth against the dollar since 1985, falling at 5% to $1.15 in a single day. Banks around the world are continuing to lower interest rates in panic moves to control finances in the pandemic.
The finance industry is naturally international, especially as businesses look to a global market, which means that more money is being sent around the world than ever. Core elements of the banking industry are based in India, which, as explained by Global Voices, is one sector that isn’t stopping during this pandemic, thanks to their skilled workforce.
Banks are reportedly working at full capacity in order to maintain full availability to their global customers, including refusing to implement a work-from-home policy to protect staff, despite the falling global economy. And as more countries around the world go into lockdown, it could get increasingly difficult for India-based banks to communicate with global businesses.
Industries are suffering
Such is the panic surrounding the virus, that major music festivals have been cancelled or postponed, including Coachella in America and the UK’s Glastonbury — the latter of which was set to celebrate its 50th anniversary. This is a devastating blow to the economy, as millions of jobs are now being lost, from building the festival sites and stewarding, to performing and hosting. These events often pull in over $100 million, while the UK’s live music industry added more than £1 billion to the economy. And that’s just in a single industry.
For the average consumer and shopper, it’s become increasingly difficult to do general shopping. Most manufacturing is completed in China, where the virus originated, and which has, therefore, suffered the hardest. Factories were completely shut down, halting work completely while the population recovered.
But now, as the rest of the world suffers and closes its borders, the industry could continue to reel from the devastating blows. American factories, for example, produce processor chips and other components needed to make smartphones and computers — of which China produces over 80%. Now, the US’s anti-disease control measures could disrupt this flow of products, causing the global electronics industry to suffer as a result.
How the global economy can bounce back
In order for the global economy to return, global industries need to get back up and running. Manufacturing in China, as previously mentioned, can only truly start up again once other countries start to recover from the virus. The travel industry is also suffering, as more countries start to impose travel bans, and UK-based enterprises are urging government action before businesses collapse.
Meanwhile, Italian companies have all but completely ceased activity, as the country bears the brunt of the pandemic in Europe, leaving entire cities in quarantine. Global stocks are continuing to collapse, and experts are projecting that the US economy will flatline during the second quarter of the year.
The UK government has unveiled financial measures to help cushion the blow of the coronavirus impact, in the form of £330 billion in loans, £20 billion in other aid, grants for retailers and pubs, as well as a business rates holiday. However, while the coming depression may be reminiscent of the 2008 financial crisis, chief economist of PNC Financial Services Group, Gus Faucher, has explained that a recession is not inevitable. Instead, it’s “likely to be brief and much less severe than the Great Recession”. This is due to the fact that Covid-19 more closely resembles a natural disaster, as it’s something external to the economy. But as with any slump, the pain of recovery depends on how long it lasts.
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