Assignment on the effects of the Coronavirus on the global economy

Coronavirus has induced a major impact on the global economy in the first quarter of 2020. The Coronavirus outbreak was mainly originated in China that affected more than 550,000 people. The outbreak reached around the world that count cost. The big shift was observed in stock markets and the shares of the company were largely affected by the outbreak of novel coronavirus. Due to coronavirus, the main strategy to stop the spread of COVID-19 outbreak was lockdowns with the implementation of tough measures (Cnbc. com, 2020). The countries having strict lockdown faced big halt of industrial production chains. The global financial markets are facing extreme strokes around Europe and the Middle East. Current, GDP forecast is dubious due to containment efforts, firms' reactions, and other factors for the economic impact. Saudi Arabia is also facing brutal drawdown in the global financial markets that indicate the recession in the world economy. The key issue is not only the number of cases affected by COVID-19 but also the levels of disruptions in the economies at global levels (Thenews. com. pk, 2020).

Is the Coronavirus affecting the Saudi economy (oil industry, tourism industry)?

Coronavirus hitting Saudi Arabia is having an impact on oil prices, capital markets, and tourism. GCC economics identified three major channels for the transmission of COVID-19. Oil is one of the major and principal export products and dramatic fallen in prices. After the outbreak of COVID-19, OPEC and all its allies failed in reaching the agreement and result in cutting output. The statistics of Saudi Arabia plunged 20% of crude features with the rise of production and discounts in the oil prices (Turak, 2020). After the outbreak in Asia, the Brent crude was down at 6.01% with the $33.64 barrels. The statistics of U. S. crude traded at $31.15 with the down rate of 5.55%. Saudi Arabia heavily relies on the oil revenues (Molavi, 2020).

Source: https://www.bbc.com/news/business-51706225 

The price forecast decreased from $60 barrel to $40 a barrel for the year. The exact figures are below the fiscal breakeven oil prices. The graphic distribution for Saudi Arabia shows that 53% of exports were delivered outside of the country and with increasing COVID-19 the exports are either high or spiking. Saudi Arabia can lose about $ 12 billion of the annual GDP that is equivalent to 20 per cent of non-oil GDP and 7% of the whole GDP (Csis. org, 2020).

UAE receives more than 17 million visitors on an annual basis and Saudi Arabia attracts 20 million tourists and pilgrims.  The other factor affected by the outbreak of the coronavirus is tourism. The Saudi officials are now restricting the travel from 26 countries that had hard hit of coronavirus. The reduced travel visa will reduce tourism in Saudi Arabia and result in decreasing tourism GDP. This suggests a reluctance in the disrupt tourism industry. The crown Prince Mohammed Bin Salman hopes to make up 10% of Saudi GDP by 2030. There are two main Islamic pilgrimages including Hajj and Umrah that worth $12 billion in a year to Saudi Arabia (Thenews. com. pk, 2020).

The imperative analysis shows that 88-year-old kingdom of Saudi Arabia relies on the oil revenues that are 87 per cent of the budget and the oil-related industries in Saudi Arabia participate 42 per cent of the total GDP.  Based on tourism, Saudi Arabia is expecting thousands of dollars per night and about 43% of the Umrah prayers will be done in the coming Islamic months. Before the outbreak of Coronavirus between 2017 and 2018 more than 6.7 million Muslims visited Saudi Arabia for Umrah (Middleeasteye. net, 2020).

 The decision to suspend the pilgrims due to Coronavirus can hurt the finances of Saudi Arabia. The decision of restricting international pilgrimages due to global pandemic could impact the GDP. Under the analysis of development, Saudi Arabia’s non-oil revenues due to tourism take into account the $150 billion due to Umrah and Hajj revenues during the coming years of 2022.  These revenues are expected to merge in the economic groupings and blocs. Saudi Arabia population increased as 33 million people and employees are greater than 6 million (Turak, 2020; Thenews. com. pk, 2020).

Source: https://www.bbc.com/news/business-51706225 

In which way is the Saudi economy be affected by the coronavirus?

The outbreak of novel Coronavirus is affecting the economy of the world in many ways. There are two main ways to induce impact on the Saudi Economy including fall in oil prices and reduced tourism industry. Saudi economy teeters as the oil prices continue to be reduced day by day and fears of coronavirus continue to harm the economic prospects (Middleeasteye. net, 2020).

The economy of Saudi Arabia has continued to buckle up with the collapse of oil prices due to the wave of coronavirus pandemic. The rapidly spreading virus is escalating the price war with major economic measures and stimulus. The down per cent of 2.5 at $26 a barrel was a benchmark lost with 1.5 per cent to $28. Considering the previous records 17-year lows are observed in recent days and travel restrictions are hitting demand and major producers (Thenews. com. pk, 2020; Cnbc. com, 2020).

The contracts suffered in Riyadh is due to fresh selling that is planned to boost exports at 10 million barrels per day. The biggest exporters of the world suggested free up of additional 250, 000 bpd of oil for next coming exports for the domestic consumptions. The outbreak of coronavirus is inducing impact on the price war and the exponential increase is observed that is due to closing border and crushed the rebound hopes. The price war of oil started in Saudi Arabia after the OPEC pushed the informal alliance. Saudi Arabia is the second-biggest oil producer and its economy mainly depends on the oil trades. Due to coronavirus oil prices faced massive cuts and pledge to boost the output (Turak, 2020).

Saudi Arabia is facing huge losses because of shutting down halted flights, malls, cinemas, locked down eastern Qatif region, suspended year-round Umrah pilgrimage and locked down eastern Qatif region. In the time of crises, the government employee is speaking to AFP and converting the part of his salary to gold coins and US dollars. Currently, everything is unpredictable and they should be ready to face the worst conditions. The central bank has shrugged the fear of plunging the oil prices and pegged for the U. S. dollars. Many government workers are facing fears of allowances in the coming days. In this way, the outbreak of coronavirus is rising living costs (Csis. org, 2020).

The recruitment process is freeze and the unemployment rate is rising day by day. The finance ministry is producing proposals to slash the spending of the year by 20 to 30 per cent. Due to economic losses, the kingdom is now preparing different scenarios for the budget to overcome the issues and to identify price drop as low as $12 - $20 per barrel. According to the Saudi Ministry, public confidence depends on the oil sentiment and government spending and both of them are down. The Saudi Arabia economy is collapsing as Brent crude fell is more than 20% and it is sharpest one day drop since 1991 (Turak, 2020).

The damage from Coronavirus include price shocks, large oil-producing, pare back investment and other production. The firms are now heavily indebted due to the higher risk of layoffs, bankruptcy, and consolidation. Investors are well aware of energy companies that yield to high 11 per cent market. In these theories, lower oil prices should help the oil-importing countries but due to depressed activity of COVID-19 the limit of benefits is increasing (Middleeasteye. net, 2020).

The fears of a broader outbreak induce impact on the financial markets and indices the market territory that is suspended down about 17 per cent from the high records. The damage from the COVID-19 is sending unsettling signals to the markets with the coordinated policy responses. The petroleum revenues of Saudi Arabia are shrinking fast and reduce supply in the producer’s route to bolstering income and prices (Molavi, 2020).

The oil production is a downturn with the additional cut in one million barrels per day and it causes the difference in the economy. The probability is that the technical committee is recommended by the daily trims of 600,000 to one million barrels. Due to the increasing gravity of the coronavirus outbreak, Saudi Arabia is facing a decline in tourism and oil production. The analysis shows a higher risk with a further price drop. The spread of COVID-19 disease is unsettling supply chains, freaking out the stock markets, sapping sales of some products, global recession, intensifying fears and throwing travel in the chaos (Thenews. com. pk, 2020).

 The other industries affected by the coronavirus are tied to tourism and travel such as cruise lines, airlines, and hotels due to travel bans, contagion, warnings, and general fears. The fatality rate in Saudi Arabia is more than 2 per cent. The fear of coronavirus will continue to impact the global economy and it is the main reason for the economic jitters (Molavi, 2020). 

References of the effects of the Coronavirus on the global economy

Cnbc. com. (2020). Three ways the coronavirus could have an impact on Middle East economies. Retrieved from www.cnbc.com: https://www.cnbc.com/2020/03/12/three-ways-the-coronavirus-could-impact-middle-east-economies.html

Csis. org. (2020). The Global Economic Impacts of COVID-19. Retrieved from www.csis.org: https://www.csis.org/analysis/global-economic-impacts-covid-19

Middleeasteye. net. (2020). Coronavirus: Saudi economy teeters as oil prices continue to fall. Retrieved from www.middleeasteye.net: https://www.middleeasteye.net/news/saudi-economy-teeters-oil-prices-continue-fall

Molavi, A. (2020). Billions poised to become economic victims of coronavirus. Retrieved from www.arabnews.com: https://www.arabnews.com/node/1636831

Thenews. com. pk. (2020). Coronavirus may cost Saudi Arabia GDP $12b: reports. Retrieved from www.thenews.com.pk: https://www.thenews.com.pk/print/623828-coronavirus-may-cost-saudi-arabia-gdp-12b-reports

Turak, N. (2020). Saudi Arabia announces $32 billion in emergency funds to mitigate oil, coronavirus impact. Retrieved from www.cnbc.com: https://www.cnbc.com/2020/03/20/coronavirus-and-oil-saudi-arabia-announces-32-billion-stimulus.html