The Economic Impact of Corona Pandemic
It seems like the end of the World as we knew it; Corona Virus has brought humanity to its knees. First discovered in Wuhan city of China, where it infected a shop handler in the meat market, and then in the coming weeks, made its way to the entire globe. As of today, 187 countries are struggling to control the Corona outbreak. This pandemic is a historical incident, comparable to the likes of World War II and it has proved to be a grim reality to all of humanity. All sectors of human life have been affected but most of all is the health and economic infrastructure. These are uncharted waters. We have no experience regarding the timeline for the cure or vaccine of the virus and neither can we determine how and when the economy of the world will recover from this disaster. Corona has exposed the fragility of our man-made systems and the limitations of our knowledge and robustness. It is a time to re-think our way of life and the solutions to this pandemic.
Corona virus has infected over 3.5 million people across the globe with 14000 deaths and the numbers keep rising on a daily basis. China was the worst hit as the source of the virus. From China, via flights and borders, the virus quickly spread to other parts of the world. First to come was Europe where Italy has been a horrific case. Out of 14000 overall deaths, around 4000 deaths have occurred in Italy, for the reason that they ignored the initial warnings. In a similar pattern, France, Spain, U.K and other nations have been hit by the pandemic. No continent is safe. The U.S, Canada, Australia are also in the line of the virus and the number of infections are climbing by the hour. The virus is extremely resilient and is highly contagious. It spreads by human contact and touching items that have been in contact with a corona patient. The whole world has gone into a severe crisis and dark times are coming ahead. The worst is yet to come as developing countries have only begun to get cases of corona. Compromised health systems will make it worse for them to treat infections on such a large scale. It was thought that the fatality rate of Corona virus is around 3% but is now believed to be 8 to 10% of the whole. That is, if 100,000 persons are infected, 10,000 will most probably die. The virus starts as a mild fever, sore throat and gets worse over time. The virus attacks the lungs and the patient suffers from pneumonia causing difficulty breathing. Within a period of ten days, the patient suffers from multiple organ failure leading to death. In most cases, the symptoms improve after the first week and only minor medications are required. The only method to limit corona is through social distancing and adopting disinfectants to stay clear of the virus. For this purpose, lockdowns and stoppage of travel is needed. The loss of life is one of the most tragic parts of this pandemic but the long term impact is the economic downturn that is yet to come. Patients of corona recover within weeks, but the economies of the world will take much longer to come back to where they were when this pandemic began.
All sectors have been badly hit in financial terms. China, to begin with, has shrunk in its production, growth and services by over 40 percent. Almost all major businesses and companies of the world have their critical offices and production in China and with this virus; those facilities have been shut down. China is termed as “the factory of the world”. Corona has put the brakes on that factory. Chinese production, imports as well as exports drive the world GDP. As a result of lockdowns and changes in consumption and industrial activity, there has been an overall loss of around 25 Billion Dollars in China alone. That’s almost equal to the whole annual GDP of Great Britain. Production lines, product launch, export orders have been delayed beyond deadlines. Multiple conglomerates are approaching bankruptcy as the Government of China seeks to inject liquidity to rescue major firms. The objective here is to protect job losses and keeping the market running at optimal levels. The same pattern can be applied to Europe and the U.S where similar shortages, uneven market activity can be observed in almost all sectors.
The United Nations has reported that because of Corona around 900 Million children are not attending schools. All countries with Corona have shut down their educational activities. The social cost of this prospect is still under consideration for a proper estimate. Airliners and tourism industry across the globe have reported over 80 percent decrease in sales and revenues. European Airliners are already in need of bail outs for staying afloat. 70 percent of world airplanes are now grounded with no hope of revival in the near future as more and more countries are enforcing travel restrictions from other countries. For the first time ever, the U.S has banned all flights even from Europe. Stock markets are next in line. Due to lockdowns and Government regulations to stay at home, factories are either closed or running on minimal production. That limited production equals limited sales and profits which are then reflected in the stock markets. World over, thousands worth of indexes have been lost; this loss of value in stocks is ten times larger than the financial crash of Lehman brothers and Companies. Prices of Gold and oil are plummeting, which means that all countries and companies which make money from oil and raw material will observe a sharp fall in revenues, which will then be reflected in their national economies. OPEC countries will be the first to feel the brunt.
At the national levels, lockdowns are causing disruption of supply chains and panic-buying, which is also called hoarding. Panic-buying is creating market irregularities causing undue changes in commodity prices. These fluctuations will hurt the middle class and poor segments of the society. If stocks cannot be replenished in time due to absent workers, the shortages can turn into a crisis of their own. Governments need to be extra cautious in already poor economies and those under sanctions, such as Iran. Also, developing countries do not have the funds and resources to deal with thousands of patients rushing towards hospitals, as is being observed in the case of outbreaks around the world. The labor classes, personnel working on daily wages, menial jobs and pay per project will be under a severe cash crisis. It will be up to the State banks to embark on a massive bail out system to rescue these segments.
Almost 2.7 Trillion Dollars have been lost in the global GDP as a result of Corona and it is only picking up. Unity and understanding will be needed to control the fall out of this catastrophe. People all over the world are being told to stay in their homes to avoid infection, rest assured, the work that is being lost will have to be done three times over to revive respective economies and bringing the world out of a spiraling recession threatening lives as well as livelihoods.
The writer is Chairman of Jinnah Rafi Foundation