Impact of Current Outbreak on Global Economy and Financial Market

Background of Impact of Current Outbreak on Global Economy and Financial Market:

Epidemics like SARS and many other flu pandemics in past have huge negative consequences on overall population health as well as the economy. This article is discussing the current outbreak of Novel COVID-19 on global economy and financial market. One of the reasons of this article is to give an angle of understanding to government and practitioners that why improving the current condition is very much critical for every country economy and in short, the overall global economy. Here we are explaining the significant impacts or current outbreak on global economy. The current outbreak is a global epidemic threat and the matter of fact is quite serious.

Introduction of Impact of Current Outbreak on Global Economy and Financial Market:

The current outbreak of novel COVID-19 has become the major threat to global economy right now. The virus was first detected in city Wuhan of China last December. This virus infected 110,000 people in almost 110 countries. The corona virus has become one of the greatest threats to the global economy and financial markets now. Fears of corona virus effected global economy have rocked markets worldwide with stock pricing. The disease is spreading rapidly around the world in countries like Italy, Iran, South Korea. Other European countries have also seen more than 1000 cases. “From the economical point of view, the major issues are not just the number of cases of COVID-19, but also the level of disturbance of economy” Ben May, head of Global macro research from Oxford economics said in his report this week. The lockdowns have weakened the global economy even more.

Most worryingly, some governments say that they can slow down the spread of the disease, rather than taking the steps to improve the situation they just talk. On the economy point of view a severe recession cannot avoided any longer and economist are asking for help from government to shore up. The global economy is suffering from unpredictable supply shock. People are not working because they are either sick or quarantined. What needed to save the economy is fiscal measures to save companies and banks from crises when the pandemic is over. Some forms of tax relief should be considered by policy makers. The most important thing is a short time work allowance, this could be the most promising thing right now.

Restriction on traveling, sporting events are cancelled, mass gathering is restricted, stock market is falling, shopping malls are closed. This is the global recession. Until a month ago it was thought that the corona virus outbreak is localized to china and any spread could be managed easily. When it was confirmed that the COVID-19 is not just for china and economy would be affected globally forecast started to be revised down.

Impacts of COVID-19 on economy of Impact of Current Outbreak on Global Economy and Financial Market:

The World Health Organization (WHO) first announced the corona virus as the world health emergency in January 2020. As the virus was first confirmed in China’s city Wuhan, it has now been detected in 19-0 countries and all us states. In start of March, the infection spread from China to Europe and especially in Italy and now in April the infection is shifted to united state where it is increasing in accelerating rate. This infection has caused almost thousand of deaths and almost 1.5 million people are infected. Almost 80 countries had sealed their boarders for the arrival of the countries which are infected, businesses are closed, population is self-quarantined and schools and colleges and every work place is closed. China was the first country who banned the travels, then south Korea. From march to April almost 17 million Americans had filed for their unemployment insurance, which raise the danger of deep economic recession and there is a great risk of unemployment rate too. After so long, central banks are busy in ongoing steps to intervention in financial market and the government of each country is announcing to spend initiatives in order to accelerate their economy. On the other hand, international organizations are making up for the steps to give loans and other requirements for the countries who are in need. Extraordinary steps have taken by the federal reserve which had not experienced this since 2008-2009 global economy crisis in order to cope with the problem of growing epidemic. In some countries, central bank took initiative by lowering the interest rate and has also announced new financing facilities. The economic situation remains at high fluid. The fueling perception of risk here the length and depth of health crisis in relation to the economic effect. It also increases the volatility in financial market and corporate decision making.

Example of one market recession is Panda market;

Panda retail company is a grocery retailing company in the gulf kingdom of Saudi Arabia. Amid the disaster cause by the COVID – 19 the world Is going through a global recession in terms of economic losses, every day companies tends to lose great number in their stock pricing which is due to fear and lock down in the biggest cities of the world. In the shadow of such situations the countries one of the biggest retailer panda market have also halted its sale promotions as people are now looking to stock their everyday needs in light of the upcoming situations probably a lockdown. In terms of sale growth, the company have received a increase in their online retail which is obviously because of the current situation but they have witnessed immense decline in the sales in their stores as the government has advised its people to restrict social arrangements. However, the company is at somehow 50/50 profit and loss it’s still facing the sound of recession as the imports from china are halted. As for the information the panda market had a revenue of 2.9 billion local currency (US $772m) in FY 19 which is expected to decline in FY 20. In the upcoming days the management have decided to limit its access to general public and work entirely on online and delivery to possibly control the outbreak and as per the directions of the local government. They are using wide sale range in some of the products which are locally harvested to attract the number of buyers and also to cover up some percentage of the losses they will face after the closure of public incoming into the hyper market. It could also possibly result in delay in salaries of the employees. During this time of international crisis, they are trying their best to maintain the price range of the imported goods so the citizen can access the needs amid of the panic situations say its spokesperson.

One more example illustrated here is recession in Saudi Airlines economy;

Corona virus has the major impact on the economy of middle east specially. In Saudi, oil prices, tourism and capital markets hit by corona virus have major effect on gulf economy. The WHO on Wednesday announces that the disease is global pandemic and effected 110 countries till now and infected almost 121000 people in total. Many middle east nations rely mostly on Saudi for oil production specially. The United Arab Emirates will face a major loss in tourism if the virus will continue till pilgrimage season. Muslim pilgrims were wearing masks at the grand mosque in Saudi Arabia’s holy city. Now Saudi Arabia had suspended visas for umrah. This also raised question over annual hajj. Spending by foreigner is likely to be affected greatly by corona virus outbreak especially in Saudi airlines. Saudi Arabia receive 20 million tourist every year, most of them for religious purpose. The country has suspended the entry of foreigners into the country for the purpose of umrah and visiting mosque, an important place for every Muslim. It is obvious that the economic effect on both Saudi Arabia and on UAE would be higher that that was currently expected.

What markets are telling us?

The bad drawdown in global market of finance last week highlighted that the world economy is on the way to recession. Markets are telling that some more days with this virus and everything will fall into destruction in global financial markets. Some innovative steps should be taken as soon as possible in order to get rid of this virus as soon as possible and to make the unstable economy again in stable place. Extraordinary steps have taken by the federal reserve which had not experienced this since 2008-2009 global economy crisis in order to cope with the problem of growing epidemic. In some countries, central bank took initiative by lowering the interest rate and has also announced new financing facilities. The economic situation remains at high fluid.

Recession could not be seen as a forgone conclusion. Places where impacts od COVID-19 has not been uniform, take evaluation of risk assets there. Credit markets are not seeing at future of financial and funding problems. The risks in recession of global market is still at high from the overall history of the global financial crisis. Volatility has highlighted the greatest strain on the other end of the spectrum.

Second, where the financial markets are the most important recession indicator, it is stated by the history that bear market and recession cannot conflated automatically. If we say that one out of every 3 bear markets are not recessionary is totally possible. Bear market cannot coincide with recession and in history there are 7 such examples are present.

There is no doubt that due to COVID-19, global finance markets are showing significant level of disruption and all those risks are totally real. The amount of uncertainty that surround this epidemic is highlighted through asset evaluation differences.

What is the Likely Recovery Path?

Even if the economies of the globe are able to pass the recession, the direction which takes back to the growing pace under the Covid-19 will totally rely on a wide range of handlers , such as the area in which the requirement will be move forward or foregone, even if the after effect is honestly a surge or lasts, or even if it involves a damage of structure, in discussion among other factors, it’s quite adequate to draw three of the main scenario in a broader canvas which we will elaborate as V-U-L

·         V-shaped: this canvas elaborates the “classic” shock of real economy, a change of output, but eventually growth rebounds. In this picture, shock can be fully taken over by annual growth rates. Though It might look optimistic referring to today’s scenario but the analyst think is plausible

·         U-Shaped: this area is the sibling of V which is quite ugly. The after effect will stay and while the starting point of growth path is continued, there will be some loss of permanent output. The plausibility of this output in Covid-19 is possible. But to help construct this argument we would like to inquire more evidence of the actual damage made by the virus to take it as the base case.

·         L-shaped: this area elaborates the poor connectivity among V and U and its quite ugly. For this to come in effect a believer in the ability of Covid-19 is required to make noticeable structural damage, i.e. affecting something in the supply side of the economy, capital formation, the productivity function or the labor market. This is critical to determine even with an optimistic assumption. At some part we will be on the alternating side of the epidemic

Will There be Any Lasting Economic Consequences of Covid-19?

In order to understand this process, we are required to analyze the transferring structure/process through which the economy is affected by the health crisis.

If the methodologies of tax in recessions tells us that where the economy is expected to be attacked by the virus, the channels of transmission tells us how the host surrenders its control to the virus. This is critical since it reflects multiple changes that will be brought and remedies.

A hit to confidence indirectly (wealth effect): Financial markets and more broadly financial conditions are the main source of a classic transmission of exogenous shocks to the real economy, they are considered as part of the problem. As markets go downside and the contract of household wealth contracts, the rates of household savings rise up and therefore consumption falls. The impact can be critical, merely in economies which are advanced where the exposure to the household equity asset class is high.

Recessions are mostly cyclical, not a structured mechanism and yet the diameter cannot be seen. To design the financial crisis of the globe was the worst cyclical event in America, but it consists of a procedural overhang, the economy reconnected, yet the deleveraging of household is an in process secular activity

Could Covid-19 create its own structural legacy?

History narrates that the economy of the globe might show different results after the Covid-19 in multiple significant ways.

• Microeconomic legacy: Crises, including epidemics can spur the adaptation of new technical machinery and a different model of business. Referring to the outbreak of SARS which happened in 2003 is mostly given credit with the implementation of online based shopping among the consumers of Chinese markets, which further accelerated Ali baba’s share. As most of the educational institutes are shut down in japan and around the globe there is a chance of e-learning and e-delivery of education seeking a breakthrough.

• Macroeconomic legacy: Currently the virus is giving an indication that it will hasten the progress towards more of the values chains decentralized in the globe. Essentially the virus has added dimension of biology to the forces of politics and institutes who have forced the pre-2016 value chain system onto a wider direction of fragments

• Political legacy:  the ramifications of politics cannot be ruled out, around the globe, as the virus have taken all the political forces to an unprepared test that how capable are they to protect their own citizens from the pandemic. Its major effects can be seen on upcoming elections mainly in US. As well as brittle institutions can be uncovered and can shift political triggers

How to cope with situation of Impact of Current Outbreak on Global Economy and Financial Market:

People are experiencing variety of feelings and thoughts these days during this situation of COVID-19. How to cope with this evolving situation so that it will not spread a lot and will not affect our economy more. This is obviously be stressful time for everyone. This is totally upsetting for everyone in this world right now. Many of us are thinking that the world is about to end. Students are bearing lose of their studies due to major lockdown. all people, one who are affected, one who are watching media all over the world everyone is in stress right now. Children especially are at the risk as they are frightened. The image that was in their mind about the safe world is temporary lost. We should talk with them and make them calm and seriously tell them the protective measures.

A lot of anxiety comes from not knowing what will happen regarding corona virus outbreak and for how long the lock down will continue. We often experience paralyzing anxiety. Accept that our life is going to be different for a while. Accepting this situation will be really helpful. Even a well-off person is now worrying about money and this stress is natural as the lockdown is impacting our economy individually as well as globally.

Start prioritizing your mental and physical health care. Stay aware about the latest information regarding COVID-19 outbreak. Most people who become infected face mild illness and can recover easily but can be more severe to some people having weak immune system. Do following things to protect yourself and your loved ones;

Wash hands regularly and thoroughly with some alcohol bases hand wash or soap. This can easily kill the viruses present on your hand

Maintain at least 1 meter of social distance and anyone who is sneezing or coughing. Because when someone sneeze or cough they put small liquid droplets from their nose or mouth which may contain virus if you accidently breathe in those virus containing droplets you will get the disease too.

Try to avoid touching your own eyes, mouth or nose as our hand touch many surfaces and can pick the virus. And once it transferred to eyes, nose or mouth, the virus can sneak in the body and make ourselves sick.

Take precaution about respiratory hygiene like putting on the mask on nose and mouth and bet your elbow when cough or sneeze then throw the used tissue immediately.

If you have any symptom regarding corona virus, seek the medical care as early as possible.

Stay informed and share advises regarding current situation to people around you because together we can fight this disease to spread and together, we can save our economy and ourselves

References of Impact of Current Outbreak on Global Economy and Financial Market:
https://www.csis.org/analysis/global-economic-impacts-covid-19
https://www.bbc.com/news/business-51706225
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