Impact of COVID-19 on Economy
Impact
of COVID-19 on trades, various sectors , consumables, stock market , healthcare
system and many more...
SHUCHI.P.NAHAR
The coronavirus is not only a health crisis of
immense proportion—it’s also an imminent restructuring of the global economic
order. Here’s how leaders can begin navigating to what’s next.
"Millions of workers in these
countries are facing the bleak prospect of losing their jobs. Governments are
considering and rolling out large stimulus packages to avert a sharp downturn
of their economies which could potentially plunge the global economy into a
deep recession. In the worst-case scenario, the world economy could contract by
0.9 per cent in 2020," the DESA said, adding that the world economy had
contracted by 1.7 per cent during the global financial crisis in 2009.
It added that the contraction
could be even higher if governments fail to provide income support and help
boost consumer spending.
For some organizations, near-term survival is the
only agenda item. Others are peering through the fog of uncertainty, thinking
about how to position themselves once the crisis has passed and things return
to normal. The question is, ‘What will normal look like?’ While no one can say
how long the crisis will last, what we find on the other side will not look
like the normal of recent years.”
Moreover, it is not good news when two contagions
are, indeed, global pandemics. When a drop in demand is confined to one
country, the loss is partially spread abroad, while demand for the country’s
exports is not diminished much. But this time, that natural safety valve won’t
work, because the recession threatens nearly all countries.
Impact on trades
The world economy will go into recession due to the
coronavirus pandemic, with the exception of India and China, according to a
latest United Nations trade report.
Two-thirds of the world living in developing
countries are faced with unprecedented economic damage, United Nations
Conference on Trade and Development said in its new analysis, calling for a
$2.5 trillion rescue package for these nations.
According to the UNCTAD analysis, commodity-rich
exporting countries will face a $2-$3 trillion drop in investments from
overseas in the next two years.
Many people seem to assume that the financial
anxiety is nothing more than a direct byproduct of the COVID-19 crisis – a
perfectly logical reaction to the disease pandemic. But anxiety is not
perfectly logical. The pandemic of financial anxiety, spreading through
panicked reaction to price drops and changing narratives, has a life of its
own.
These words were written 11 years ago, amid the
last global financial crisis, by one of our former managing partners, Ian
Davis. They ring true today but if anything, understate the reality the world
is currently facing.
It is increasingly clear our era will be defined by
a fundamental schism: the period before COVID-19 and the new normal that will
emerge in the post-viral era: the “next normal.” In this unprecedented new
reality, we will witness a dramatic restructuring of the economic and social
order in which business and society have traditionally operated. And in the
near future, we will see the beginning of discussion and debate about what the
next normal could entail and how sharply its contours will diverge from those
that previously shaped our lives.
What will it take to navigate this crisis, now that our traditional metrics and
assumptions have been rendered irrelevant? More simply put, it’s our turn to
answer a question that many of us once asked of our grandparents: What did you
do during the war?
Our answer is a call to act across five stages, leading from the crisis of
today to the next normal that will emerge after the battle against corona
virus has been won: Resolve, Resilience, Return, Reimagination, and
Reform.
What will it take to navigate this crisis, now that our traditional metrics and assumptions have been rendered irrelevant? More simply put, it’s our turn to answer a question that many of us once asked of our grandparents: What did you do during the war?
Our answer is a call to act across five stages, leading from the crisis of today to the next normal that will emerge after the battle against corona virus has been won: Resolve, Resilience, Return, Reimagination, and Reform.
Credit :McKinsey &Company Report
Resolve
In almost all countries, crisis-response efforts are in full motion. A large
array of public-health interventions has been deployed. Healthcare systems
are—explicitly—on a war footing to increase their capacity of beds, supplies,
and trained workers. Efforts are under way to alleviate shortages of
much-needed medical supplies. Business-continuity and employee-safety plans
have been escalated, with remote work established as the default operating
mode. Many are dealing with acute slowdowns in their operations, while some
seek to accelerate to meet demand in critical areas spanning food, household
supplies, and paper goods. Educational institutions are moving online to
provide ongoing learning opportunities as physical classrooms shut down. This
is the stage on which leaders are currently focused.
Resilience
The pandemic has metastasized into a burgeoning crisis for the economy
and financial system. The acute pullback in economic activity, necessary to
protect public health, is simultaneously jeopardizing the economic well-being
of citizens and institutions. The rapid succession of liquidity and solvency
challenges hitting multiple industries is proving resistant to the efforts of
central banks and governments to keep the financial system functioning.
A health crisis is turning into a financial crisis as uncertainty about the
size, duration, and shape of the decline in GDP and employment undermines what
remains of business confidence.
Return
Returning businesses to operational health after a severe shutdown is extremely
challenging, as China is finding even as it slowly returns to work. Most
industries will need to reactivate their entire supply chain, even as the
differential scale and timing of the impact of coronavirus mean that global
supply chains face disruption in multiple geographies. The weakest point in the
chain will determine the success or otherwise of a return to rehiring,
training, and attaining previous levels of workforce productivity. Leaders must
therefore reassess their entire business system and plan for contingent actions
in order to return their business to effective production at pace and at scale.
Re-imagination
A shock of this scale will create a discontinuous shift in the preferences and
expectations of individuals as citizens, as employees, and as consumers. These
shifts and their impact on how we live, how we work, and how we use technology
will emerge more clearly over the coming weeks and months. Institutions that
reinvent themselves to make the most of better insight and foresight, as
preferences evolve, will disproportionally succeed.
The crisis will reveal not just vulnerabilities but opportunities to improve
the performance of businesses. Leaders will need to reconsider which costs are
truly fixed versus variable, as the shutting down of huge swaths of production
sheds light on what is ultimately required versus nice to have. Decisions about
how far to flex operations without loss of efficiency will likewise be informed
by the experience of closing down much of global production.
Reform
The world now has a much sharper definition of what constitutes a black-swan
event. This shock will likely give way to a desire to restrict some factors
that helped make the coronavirus a global challenge, rather than a local issue
to be managed. Governments are likely to feel emboldened and supported by their
citizens to take a more active role in shaping economic activity.
Policies on critical healthcare infrastructure, strategic reserves of key
supplies, and contingency production facilities for critical medical equipment
will all need to be addressed. Managers of the financial system and the
economy, having learned from the economically induced failures of the last
global financial crisis, must now contend with strengthening the system to
withstand acute and global exogenous shocks, such as this pandemic’s impact.
Educational institutions will need to consider modernizing to integrate
classroom and distance learning. The list goes on.
The aftermath of the pandemic will also provide an opportunity to learn from a
plethora of social innovations and experiments, ranging from working from home
to large-scale surveillance.
With this will come an understanding of which
innovations, if adopted permanently, might provide substantial uplift to
economic and social welfare—and which would ultimately inhibit the broader betterment
of society, even if helpful in halting or limiting the spread of the virus.
While every single month, during the 12 months preceding September 2008, had
seen India’s merchandise exports grow by double digit percentage points from a
year-ago period, the Lehman bankruptcy saw the country’s exports drop
year-on-year every single month, during the following 12 months, sometimes by
as much as 34% from the corresponding month in the previous year.
It might make more sense to expect a stock-market
drop from a disease epidemic than from a recent earthquake, but maybe not a
crash of the magnitude seen recently. If it were widely believed that a
treatment could limit the intensity of the COVID-19 pandemic to a matter of
months, or even that the pandemic would last a year or two, that would suggest
that the stock-market risk is not so great for a long-term investor.
One could
buy, hold, and wait it out.
Business leaders need to
anticipate popularly supported changes to policies and regulations as society
seeks to avoid, mitigate, and preempt a future health crisis of the kind we are
experiencing today.In most economies, a healthcare system little changed since
its creation post–World War II will need to determine how to meet such a rapid
surge in patient volume, managing seamlessly across in-person and virtual care.
Public-health approaches, in an interconnected and highly mobile world, must
rethink the speed and global coordination with which they need to react.
Bend in trend
In the last half-century, at
least, it’s impossible to turn the history pages and find any parallel with the
economic, trade and commerce turmoil that COVID-19 has put the world in.
However, September 2008 provides some indications for what we might be headed
for. With the American investment banking giant Lehman Brothers’ bankruptcy freezing the financial world, the month saw
India’s trade go through a trend reversal that took years to undo.
If this doesn’t make the next few
months look worrisome enough, there are two factors that are only likely to
make matters worse. One, while going into the Lehman crisis, India’s exports
were on a rampage, growing in double digit percentage points year-on-year for
several years; in the present day, the country’s exports have barely budged
over the last five years. Secondly, while the financial crisis of 2008 affected
all countries at the same time, this time around, China is up and running when
we are just starting to shut down.
But a contagion of financial anxiety works
differently than a contagion of disease. It is fueled in part by people
noticing others’ lack of confidence, reflected in price declines, and others’
emotional reaction to the declines. A negative bubble in the stock market
occurs when people see prices falling, and, trying to discover why, start
amplifying stories that explain the decline. Then, prices fall on subsequent days,
and again and again.
This time, of course, is different. We see buyers’
panics at local grocery stores, in contrast to 1918, when wartime shortages
were regular occurrences. With the Great Recession just behind us, we certainly
are well aware of the possibility of major drops in asset prices. Instead of a
tragic world war, this time the US is preoccupied with its own political
polarization, and there are many angry narratives about the federal
government’s mishandling of the crisis.
Predicting the stock market at a time like this is
hard. To do so well, we would have to predict the direct effects on the economy
of the COVID-19 pandemic, as well as all the real and psychological effects of
the pandemic of financial anxiety. The two are different, but inseparable.
Conclusion
The structure of the economy has shifted over time to services, many of which involve face-to-face interactions. An abrupt uptake of voluntary and compulsory social-distancing practices brings a sharp drop in demand for such services. Again, there is merit in this explanation, but it also strikes us as insufficient on its own to explain the stock-market reaction.
That brings us to behavioral and policy reactions to the COVID-19 pandemic. As the economist says “COVID-19 and the containment policies have directly and massively reduced the flow of labour to businesses. The result has been a sudden and massive reduction in the output of goods and services.” Voluntary adoption of social-distancing practices has also played a significant role. Current containment efforts are much more extensive and widespread than similar efforts in the past, including during the Spanish Flu,swine flu, Influenza, etc.
They also have more potent effects in the modern economy for reasons sketched above. In my view, the policy response to the COVID-19 pandemic provides the most compelling explanation for its unprecedented impact on the stock market.
The healthcare rationale for travel restrictions, social-distancing mandates, and other containment policies is clear. These policies also bring great economic damage. Recent stock-market behavior is an early and visible reflection of the (expected) damage.
Below are some of the finest articles to read
through to make a productive quarantine, if you haven't yet. They will surely
expand your views of this pandemic situation and its impact on overall
economy.
Sources : World Economic Forum
Verywell Wealth
Spg global report
In almost all countries, crisis-response efforts are in full motion. A large array of public-health interventions has been deployed. Healthcare systems are—explicitly—on a war footing to increase their capacity of beds, supplies, and trained workers. Efforts are under way to alleviate shortages of much-needed medical supplies. Business-continuity and employee-safety plans have been escalated, with remote work established as the default operating mode. Many are dealing with acute slowdowns in their operations, while some seek to accelerate to meet demand in critical areas spanning food, household supplies, and paper goods. Educational institutions are moving online to provide ongoing learning opportunities as physical classrooms shut down. This is the stage on which leaders are currently focused.
Resilience
The pandemic has metastasized into a burgeoning crisis for the economy and financial system. The acute pullback in economic activity, necessary to protect public health, is simultaneously jeopardizing the economic well-being of citizens and institutions. The rapid succession of liquidity and solvency challenges hitting multiple industries is proving resistant to the efforts of central banks and governments to keep the financial system functioning.
A health crisis is turning into a financial crisis as uncertainty about the size, duration, and shape of the decline in GDP and employment undermines what remains of business confidence.
Return
Returning businesses to operational health after a severe shutdown is extremely challenging, as China is finding even as it slowly returns to work. Most industries will need to reactivate their entire supply chain, even as the differential scale and timing of the impact of coronavirus mean that global supply chains face disruption in multiple geographies. The weakest point in the chain will determine the success or otherwise of a return to rehiring, training, and attaining previous levels of workforce productivity. Leaders must therefore reassess their entire business system and plan for contingent actions in order to return their business to effective production at pace and at scale.
Re-imagination
A shock of this scale will create a discontinuous shift in the preferences and expectations of individuals as citizens, as employees, and as consumers. These shifts and their impact on how we live, how we work, and how we use technology will emerge more clearly over the coming weeks and months. Institutions that reinvent themselves to make the most of better insight and foresight, as preferences evolve, will disproportionally succeed.
The crisis will reveal not just vulnerabilities but opportunities to improve the performance of businesses. Leaders will need to reconsider which costs are truly fixed versus variable, as the shutting down of huge swaths of production sheds light on what is ultimately required versus nice to have. Decisions about how far to flex operations without loss of efficiency will likewise be informed by the experience of closing down much of global production.
Reform
The world now has a much sharper definition of what constitutes a black-swan event. This shock will likely give way to a desire to restrict some factors that helped make the coronavirus a global challenge, rather than a local issue to be managed. Governments are likely to feel emboldened and supported by their citizens to take a more active role in shaping economic activity.
Policies on critical healthcare infrastructure, strategic reserves of key supplies, and contingency production facilities for critical medical equipment will all need to be addressed. Managers of the financial system and the economy, having learned from the economically induced failures of the last global financial crisis, must now contend with strengthening the system to withstand acute and global exogenous shocks, such as this pandemic’s impact. Educational institutions will need to consider modernizing to integrate classroom and distance learning. The list goes on.
The aftermath of the pandemic will also provide an opportunity to learn from a plethora of social innovations and experiments, ranging from working from home to large-scale surveillance.
With this will come an understanding of which innovations, if adopted permanently, might provide substantial uplift to economic and social welfare—and which would ultimately inhibit the broader betterment of society, even if helpful in halting or limiting the spread of the virus.
While every single month, during the 12 months preceding September 2008, had seen India’s merchandise exports grow by double digit percentage points from a year-ago period, the Lehman bankruptcy saw the country’s exports drop year-on-year every single month, during the following 12 months, sometimes by as much as 34% from the corresponding month in the previous year.
It might make more sense to expect a stock-market drop from a disease epidemic than from a recent earthquake, but maybe not a crash of the magnitude seen recently. If it were widely believed that a treatment could limit the intensity of the COVID-19 pandemic to a matter of months, or even that the pandemic would last a year or two, that would suggest that the stock-market risk is not so great for a long-term investor.
One could buy, hold, and wait it out.
Business leaders need to anticipate popularly supported changes to policies and regulations as society seeks to avoid, mitigate, and preempt a future health crisis of the kind we are experiencing today.In most economies, a healthcare system little changed since its creation post–World War II will need to determine how to meet such a rapid surge in patient volume, managing seamlessly across in-person and virtual care. Public-health approaches, in an interconnected and highly mobile world, must rethink the speed and global coordination with which they need to react.
Conclusion
The structure of the economy has shifted over time to services, many of which involve face-to-face interactions. An abrupt uptake of voluntary and compulsory social-distancing practices brings a sharp drop in demand for such services. Again, there is merit in this explanation, but it also strikes us as insufficient on its own to explain the stock-market reaction.
That brings us to behavioral and policy reactions to the COVID-19 pandemic. As the economist says “COVID-19 and the containment policies have directly and massively reduced the flow of labour to businesses. The result has been a sudden and massive reduction in the output of goods and services.” Voluntary adoption of social-distancing practices has also played a significant role. Current containment efforts are much more extensive and widespread than similar efforts in the past, including during the Spanish Flu,swine flu, Influenza, etc.
They also have more potent effects in the modern economy for reasons sketched above. In my view, the policy response to the COVID-19 pandemic provides the most compelling explanation for its unprecedented impact on the stock market.
The healthcare rationale for travel restrictions, social-distancing mandates, and other containment policies is clear. These policies also bring great economic damage. Recent stock-market behavior is an early and visible reflection of the (expected) damage.
Verywell Wealth
Shuchi.P.Nahar
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