As COVID-19 continues to disrupt global markets in unprecedented ways, governments continue to turn to proven public health measures to contain the contagion. A COVID-19 vaccine is still far from fruition. As such, most governments that are dealing with growing infection rates of their populations are turning to social distancing and quarantines as the most pragmatic remedy. Unfortunately, these measures have severed the flow of people and goods, stalled markets, and may trigger a global recession (defined by global GDP growth of below 2% for more than two quarters).
In short, the infection caused by COVID-19 is spreading as fast in global markets as it is among people. A few short weeks ago, the economic contagion didn’t look plausible. Now, with the disease trajectory still on an upward trend, the cost to economies across the globe will be high.
Accurately forecasting the impact of the disease is nearly impossible and yet experts must do it to try and prepare for what is yet to come in the weeks, months, and yes, maybe even years ahead. With the unmapped crisis ahead of us all, everyone wants to gain some understanding or limited visibility of the impact that COVID-19 will have on market trends globally. Keep reading to find out where we all stand so far.
Global Human Toll of Covid-19
Figure 1: COVID-19 The Human Toll across the Globe
John Hopkins University has a fantastic tool that is currently tracking the human toll of COVID-19. AS of the 28th of March 2020, we have a total of 598,070 confirmed cases and 27,761 total deaths.
Even with such meticulous tracking, forecasts of the human toll of COVID-19 are notoriously unreliable at best. Predictions are doubtful, mainly because there are too many unknown variables including:
- The current understanding of COVID-19 is not fully grasped and could change. For example, some properties of the virus and its role in asymptomatic patients are unknown.
- Rates of infection and immunity are not explicitly understood where testing is limited
- Government responses are uneven and range from delayed reactions to huge missteps
- Households and businesses have unpredictable reactions to the disease
The silver lining amid the global toll is that the infection trajectory in china is leveling off. If other countries are as aggressive as China has been, then global infections could begin to level off sooner than later.
Global Impact On Markets
Global markets have had a mercurial reaction to COVID-19 over the past three weeks as the impact of the disease continues to be understood. For example, the Dow Jones Industrial Average has swung down and up by more than 1000 points several times over the past 3-week period. Other financial markets have had a similar response to the predicted impact of the disease.
A global economic outlook by Rabobank, a Dutch multinational banking and financial services company, published on March 19th, details the following:
- An expected recession in all G10 countries with expected global economic growth pegged at 0.7% in 2020 down from 2.9% before COVID-19.
- Central banks and governments are using different approaches to fight the spread of coronavirus and to mitigate the economic impact
- Data on the real economy is scanty. Nevertheless, available information points to a drastic slowdown in economic activity that is likely to continue due to countrywide lockdowns
- Some financial markets have already experienced losses surpassing those of the 2007-2008 global financial crisis
Having said that, Rabobank still acknowledges that there are still too many unknowns to make any meaningful predictions of the economic impact.
Figure 2: COVID-19 effect and outlook on economic growth (GDP growth volumes)
In the same breath, Harvard Business Review, predicts that COVID-19 will raise liquidity and capital risks in both the real economy and financial system. HBR predicts that the COVID-19 crisis could turn out to be especially threatening to entire real economies that do not have solutions to liquidity problems.
The basic theme that most experts agree on is that the global economy was already under high structural strain due to high leverage and indebtedness before COVID-19. Now, with uncertainty even higher about how long COVID-19 will last, very few want to take a market position.
Effects on Different Markets by Region
China, which was once the epicenter of the epidemic (now pandemic), appears to be passing a critical point on the path to recovery. Transmission cases are almost zero, and life is gradually getting back to normal. That said, economic data from January and February foreshadow the kind of severe damage to different country’s finances, mainly because most countries are still in the early stages of the outbreak.
|Economic Indicator||Year-over-year Change (Jan-Feb 2020)|
|Investment in Fixed Assets (excluding rural household investment)||-24.5%|
|Investment in Infrastructure||-30.3%|
|Investment in manufacturing||-31.5%|
|Investment in real estate||-16.3%|
|Value of Exports||-15.9%|
Figure 3: China’s economic indicators show a negative percentage rate across the board
As shops and factories continue to reopen, the initial supply-side shock due to the lockdown seems to be passing. According to China’s national bureau of statistics, out of 50 essential products considered to be crucial means of production, the prices of 36 of these products decreased, the prices went up for 12 of them, and remained unmoved for the remaining two. (Statistics from mid-march)
According to employment data for the week ending March 21, the number of Americans filing for unemployment benefits peaked at a record high 3.28 million. Expectations were for 1.6 million, and the previous record highs were at 695,000 in October 1982.
Highlights in Other Countries Across the World
- In Canada, almost 1 million people have applied for unemployment benefits
- Italy and Spain, which were already suffering high unemployment, are bracing for heavy economic blows, although the extent of the damage is still unpredictable.
- Lockdowns across Australia, Africa, and Europe have severely limited consumer activity, which means that businesses are also likely to invest less and produce less.
- Across the globe, productivity per worker has decreased as people are forced to work at home or not work at all due to infection.
- In Africa, the Kenyan economy tops other African countries (including Ghana, Egypt, Nigeria, Botswana, and Mozambique) with the highest risk exposure due to COVID-19. The impact on the individual economies may be determined mostly by the effect on tourism, trade, and transport sectors, as well as links with Chinese import and export trade.
Effects on Different Markets by Industry
COVID-19 has had an impact on almost every industry you can think of and some in more ways than others. Here are a few of the sectors that COVID-19 has impacted.
According to Coresight Research, more than half of US internet users are avoiding malls and shopping centers. Even more, people will avoid these places as the outbreak worsens. Similar trends can be observed across the globe forcing retailers to respond accordingly.
In India, for example, retailers like Big Bazaar are allowing shoppers to take phone-in orders and WhatsApp orders. Contactless food delivery and display of stock levels on shopping apps are also being implemented.
For the most part, the sale of CPG (consumer packaged goods) are surging across the world as retailers enhance their measures to communicate better and more directly with consumers.
COVID-19 has affected older people more than younger ones, and this has had unintended consequences on their shopping habits. Older people have begun to shop more online, which means eCommerce activity has surged. Data from Pacvue, an eCommerce Ad tech provider, also show that there has been a dramatic surge in search for products like antibacterial soap.
Global Ad Spending
As people shop more online or remotely, Ad spend has also been impacted. The click frenzy is predicted to bring in more paid search dollars. Some third-party sellers have even begun to spend less on adverts to limit the impact on their bottom line. Evidence points to reduced Ad spending for online stores like Amazon.
Trends and Outlook: A Ray of Hope
Research compiled by Rabobank from various sources shows that governments and central banks are begging to respond with stimulus packages and tax reliefs to ease the economic burden that COVID-19 has had on markets.
Central banks across the globe have cut policy rates to avoid bank credit from drying up. Additionally, the World Bank and IFC have approved a $14 billion package to support companies and employees affected by the economic downturn caused by the disease. The stimulus will also reinforce public health preparedness systems and support the private sector in several other ways.
Furthermore, the U.S., the world’s largest economy, on 27th March 2020, approved a $2.2 Trillion coronavirus bill, the largest ever aid package passed by the U.S. Congress.
With these measures, predictions are that economies will begin to experience recovery by 2021. Other analysts predict a recovery by the third quarter of 2020. Factors like consumer confidence, government, and central bank stimulus, and the spread of COVID-19 will influence a more accurate timeline for recovery.
Figure 4: Future economic outlook for 2020 and 2021
As governments continue to take drastic measures to contain COVID-19, workforces continue to be furloughed, which has an impact on markets in several ways. The impact on households and businesses has been severe. Still, governments continue to understand the seriousness of the situation and are now doing whatever they can to reduce the negative impact of the disease. Predictions of what’s to come are tenuous at best, so all we can do is our part at protecting each other and our families.