Economy: 18 Months of Malaise, at least, Amid Covid-19 Outbreak 

30/03/2020

Experts predict: “The global economy will experience ‘a sharp slowdown’ because of Covid19”. Return to normal activity depends on health experts’ advice

 

 

Before the pandemic outbreak, economists were predicting a general growth for worldwide economy in 2020. Now, they’re saying it will be at least 18 months before the economy is as healthy as it was two months ago. As we adjust to life with the new coronavirus around us, our behaviours and habits are quickly changing and we should be honest, it’ll probably be the sharpest drop in economic activity that we’ve ever seen after WW2. No one knows which type of recession we’re going to have yet. We could have a recession like after 9/11. It was a very short recession, lasted less than a year. And we recovered fully within less than two years. Or we could have a longer recession like we did in 2008.

Unfortunately is too soon to quantify the impact of Covid-19, but as cases of the virus have begun to multiply around the globe, the effects are reaching a larger number of sectors and countries.  What will be the impact of these changes on the organisations and industries around us? We probably see three business categories: winners, with sectors that will benefit, losers and the inbetweeners.

Sectors such as tourism, transportation, manufacturing and wholesale trade were already seeing the effects of disrupted supply chains and travel restrictions in Asia. Now that governments and businesses are responding to the virus in Europe and America, the retail and hospitality sectors are facing sharp falls in demand, having been closed in many countries. Demands on the health sector are increasing. Supply restrictions and shortages have pushed up some input costs, but lower oil prices have also helped to reduce transportation costs. Not even think about aviation. The global airline industry has said it will need up to US$200 billion in emergency support, and Boeing has called for US$60 billion in assistance for aerospace manufacturers as the international travel industry bleeds cash. The cancellation of most flights and the reduction in passenger flights has had a knock-on effect on air freight, half of which normally is transported in passenger-carrying planes. 

Gas and oil sector were affected too. Major restrictions on work, production and travel are resulting in weekly electricity and gas demand dropping to levels seen at weekends and during vacation periods, around 30% less than normal. On January 1, a barrel of crude oil sold for US$67.05 on New York’s NASDAQ exchange. Last week, it was trading at around US$26 per barrel. What about traditional retail? With people confined to their homes, there isn’t much point keeping traditional retail stores open. All retailers closed their activities across US, Europe and Asia. Apart from groceries and pharmacies, it will take a long time for traditional retail to recover.

 

What will be the impact of these changes on the organisations and industries around us? We probably see three business categories: winners, with sectors that will benefit, losers and the inbetweeners.

 

By the way, in the mid of the perfect storm, some sectors are benefiting from this emergency. These sectors have found themselves casually on the right side of history. By applying a basic level of competence, they should thrive. The natural strategy for these companies is to aggressively invest in opportunities and growth. 

With shops closed, people are moving online to do their shopping. For example, Amazon is adding 100,000 new jobs to manage the extra demand. Some other marketplaces are struggling to add capacity. E-commerce is growing everywhere, not only in China where it is already part of daily life. The extra demand is, in particular for Western countries, the opportunity to invest in the sector and logistic too. 

In this field, China is once again the forerunner. Beijing-based e-commerce giant JD.com used unmanned vehicles to deliver food and medical supplies in Wuhan. Cainiao, Alibaba Group’s logistics arm, launched the Green Channel initiative on January 25 in response to the increased demand for protective clothing and medical supplies, especially for front-line medical staff in Hubei province. According to media, in just nine days, Cainiao received more than 7,000 calls and shipped over 5 million medical products to Wuhan and neighbouring cities. Western providers are following the same path. UK food delivery app Deliveroo has launched a “no-contact drop-off service”. This provides restaurants with additional packaging and seals for orders to be left on customers’ doorsteps.

It’s estimated that the outbreak could cause $5 billion in losses to the global film industry. As more people stay home, self-isolation and quarantine measures could increase media consumption in the home. Platforms like Netflix, Amazon Prime video, and Disney+ all report increased viewership. Online gaming platforms are also experiencing record volumes. Moreover teleworking tools are rocketing. Video conferencing startup Zoom has benefited massively, while in China teleworking industry has literally takes off amid coronavirus outbreak.

As we said, novel coronavirus outbreak deeply affected our daily lives. This global health disaster is an opportunity to assess, which aspects of modern life are absolutely necessary, and what positive changes might be possible if we change our habits on a global scale.

 

 

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