How the Coronavirus is Affecting the Economy on a Global Scale

4.2.20

Ritti Bhogal

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Almost a month ago, CDC director Dr. Nancy Messioner warned, “It's not so much a question of if this will happen anymore, but rather more a question of exactly when this will happen and how many people [in the U.S.] will have a severe illness." It seems that her predictions regarding COVID-19 couldn’t have been more accurate. Not only have social distancing and self-quarantining measures being put into place, but schools, restaurants, and other public facilities have been temporarily shut down to halt the spread of the virus. Of course, this shouldn’t really be a surprise to the students of Downingtown STEM Academy.

While it is true that the lives of those who are infected by the virus are at risk, the virus has also begun playing a role in the lives of healthy individuals through its impact on the economy. Today, we’ll be exploring the coronavirus’s economic impact and how companies across the globe are responding to the spreading virus.

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Global Travel Industry Expects to Lose Billions of Dollars in Tourism Revenue

Despite the measures that were taken to ensure that no one infected by the virus enters the airport, the EU announced that all nonessential traveling into the region is banned for at least 30 days. On top of this, The U.S. Department of State declared a level 4 “do not travel” advisory, in which all U.S. citizens should avoid international travel. Due to empty airports and lack of travelers, over 53 airlines across the world- including United Airlines, British Airways, and Air France- have temporarily suspended or reduced incoming and outgoing flights. As of the beginning of March, There have been over 200,000 flights canceled across the world, a majority of them in Chinese airports. It’s no surprise, as airports aren’t receiving the $277 billion Chinese travelers usually spend on their travels abroad. Hope is not completely lost, as 3 Chinese airlines, which include Air China, China Southern, and China Eastern, have recently resumed flights to the San Francisco International Airport. Unfortunately, the same cannot be said for other countries. By the end of February, the cost for jet fuel in the U.S. and Singapore decreased by 17%, and consumption went down by 5.5%, which is the biggest drop either country has seen in over two years. Before March began, European airlines such as Lufthansa and Air France-KLM have seen losses in shares as large as 20%. On March 17, the U.S. Travel Association projected that the U.S. economy will suffer a loss of 809 billion dollars due to the coronavirus, and according to the American Hotel and Lodging Association, 4.6 million jobs are either already lost or going to be lost in a few weeks. Most of these jobs are in the hotel and travel industries, which have taken the biggest hit over the past few months. The U.S. unemployment is expected to double, from 3.5 to 6.3 percent.

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Roughly 30% Hit to the S&P 500 Index

The S&P 500 Index is a measure of the stock performance of the top 500 publicly-traded companies in the U.S. and considered a great indicator of the state of the U.S. market. However, the index has suffered a 12% drop since its last peak as of entering March, and suffered another considerable drop on Wednesday, March 18, in which the S&P Index had decreased by another 5%. With every hit taken into account, the S&P Index has gone down by 30% since the coronavirus became a factor in the economy. At the rate in which the virus is spreading, U.S. companies in China claim that the projected revenue for 2020 will be cut in half. Since travel restrictions make it nearly impossible for U.S. employees in China to return to company headquarters, companies are seeing a notable decrease in staff productivity, which has, in turn, led to an increase in costs and economic losses.

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Lack of a Functioning Chinese Market Poses a Threat to U.S. Companies

China is one of the largest markets in the world, with its population reaching about 1.4 billion. However, production has ground to a halt since news of COVID-19 went public and is affecting U.S. factories in China for companies such as Apple and Tesla. Even though China has recently reopened its factories, Apple had closed all 42 of its stores in China last month due to the reduction in demand for its devices during the outbreak. Even though Apple’s factories in China are back in business, Apple had to close all 17 factories in Italy since the country went into lockdown.

Not only is production at a low in China, but Chinese consumers are also buying fewer products from companies around the world. By the end of February, China’s oil demand had dropped by 20%, or 3 million barrels each day, and the impact to demand has put the oil market in a worse state than the 2008 financial crisis. Another non-renewable resource that has been vastly cut out of China’s diet is coal, with its daily average consumption down by one third compared to five years earlier. Even though the virus is wreaking havoc on land, at least the skies in China will be as clear as they were 6 years ago.

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How long is the global market going to be under the influence of the virus?

While companies and firms all over the world are struggling to return to and maintain the state at which they were before the virus began infecting people across the world, Tedros Adhanom Ghebreyesus, World Health Organization’s director-general, says that companies on an international scale “should calm down and try to see the reality.” Public response upon seeing the drop in the Dow Jones and S&P Index is fear. Instead, he proposes that people look more at the facts rather than react irrationally. Regardless, he does not diminish what the pandemic has done and what it is capable of in the near future and encourages all efforts to return the economy back to normal.