The worldwide economic impact of COVID-19

Coronavirus Worldwide Economic Impact | HR Solutions

The economic impact of the coronavirus continues to be felt by industries, businesses and employees across the world. Firms face navigating the complexities of keeping customers, employees  and suppliers safe; shoring-up cash and liquidity; re-orientating operations and navigating the various government funding programmes that are available.

Ten months of COVID-19

It’s been ten months since the start of the pandemic in January 2020, and in that time, 10% of the global population have had the virus, according to the World Health Organization. However, while the figures vary from country to country, between urban and rural areas and different social and economic groups, most of the world is still at risk. The second wave of COVID-19 has hit Europe particularly hard, with Russia, Spain, France, the UK and Italy experiencing the highest number of cases. This has seen the return of lockdowns and shutdowns in many countries to minimise spread.

Global crisis

While the UK, Japan, Germany and the US responded quickly and significantly to the outbreak of the virus, no country has escaped the impact of COVID-19. For the first time since the 1930s, economies of some of the world’s most advanced and developing nations are expected to fall into recession. Growth in advanced economies is unlikely to return to its pre-virus peak until 2022 at the earliest.

Expectations are that the US economy will shrink by 5.9% this year, representing the largest annual decline since 1946. Unemployment in the US is also expected to jump to 10.4% this year. The usually booming Chinese economy is predicted to only increase by 1.2% this year, the country’s slowest growth since 1976. Meanwhile, Australia could experience its first recession since 1991.

Overall, it’s anticipated that global growth will rebound to 5.8% next year. However, this is based on the pandemic fading out during the second half of this year.

Impact on the global economy

Before it became a global pandemic, economists predicted that COVID-19 would see most major economies lose at least 2.4% of the value of their gross domestic product (GDP) over 2020 and a drop in 2020 forecasts of global economic growth from 3.0% to 2.4%. With GDP estimated at around 86.6 trillion USD in 2019, this equates to a 0.4% amounting to nearly 3.5 trillion USD in lost economic output. However, these predictions were made before COVID became a global pandemic and the introduction of widespread restrictions on social contact to stop the spread.

The International Monetary Fund believes the global economy has contracted by at least 3% this year as countries continue to shrink at the fastest in decades. The IMF has described this global decline as the worst since the Great Depression of the 1930s and has plunged the world into a crisis like no other that could knock £7.2 trillion off global GDP over the next two years.

Stock markets

The pandemic has led to substantial changes in stock markets, where shares in firms around the world are bought and sold. As the number of coronavirus cases has grown, the FTSE, Nikkei and the Dow Jones have all experienced huge drops. The Dow and the FTSE suffered their most significant declines in the first three months of the year since 1987, with the Dow Jones reporting its largest-ever fall in just one day of almost 3,000 points.

Banks in many countries responded to this by slashing interest rates, to lower the cost of borrowing and encourage more spending in the hope it would boost the economy. While intervention from governments has enabled global markets to recover to some degree, analysts have warned that they will remain volatile until fears of the pandemic have eased.

Industries in crisis

An increasing number of industries are struggling under the strain of COVID-19 and fear it will cause permanent damage to their industry. Some of the sectors most affected by pandemic include:

Airlines

As one country after another imposed travel restrictions, one of the first sectors to turn to the government for help was the aviation industry who requested a bailout to avoid going out of business. However, while the UK government has urged airlines to look for other ways to get funding, as infection rates have eased in some areas, the industry has slowly started to reopen. Spain reopened its borders to most European visitors without the need to quarantine despite it experiencing one of Europe’s strictest lockdowns.

Road haulage

The road haulage industry has also petitioned the government for state aid. But while the government may recognise the role the haulage industry has in delivery essential food and supplies across the country, the industry is concerned that because of the closure of non-essential shops, many firms are moving fewer goods. Lorries are travelling only partially loaded, which means haulage companies are losing money each time a vehicle goes out.

Ferries

The sharp drop in passenger numbers has seen ferry companies cut back on services which have the potential of putting crucial supplies of medicines and food at risk. P&O Ferries furloughed more than 1,000 staff after it suspended their passenger services and with it the 15% of the UK’s imported goods it carries. P&O Ferries say it needs £257m to keep going and it wants £150m of that to come from the government.

Steel

With construction firms and manufacturers forced to shut down their operations, it led to a sudden drop in the demand for steel. With firms approaching a cashflow crisis, many fall outside the scope of existing emergency loan schemes.

Horticulture

Lockdown in the UK came just as springtime had arrived. Usually at this time garden centres would be enjoying a roaring trade, but this year garden centres and nurseries were forced to shut. A third of plant producers now face going bust, according to the Horticultural Trades Association who has asked the government for £250m financial assistance to save the industry from collapse.

Charities 

Charities have been working in overdrive, providing help and support during these difficult times. But charities themselves are struggling from the financial impact of the pandemic. Age UK and Oxfam are just two charities who had to furlough up to 70% of their staff. Charity leaders have urged the government to create a specific support package for charities to help them keep running.

Employment

The coronavirus crisis has led to many people losing their jobs or seeing their incomes cut significantly, leading to unemployment rates increasing across all major economies. Unemployment in the US has reached 10.4%, marking the end of a decade of expansion for one of the world’s biggest economies. Millions of people have been put on government-funded job retention schemes as specific sectors such as hospitality and tourism came to a complete standstill during the lockdown. However, there have some promising signs of recovery in the global employment market. For instance, France and China have seen a rise in hiring rates as shutdowns began to ease but it could be years before employment levels return to pre-pandemic figures.

Optimistic global outlook

According to Deloitte no industry is escaping the disruption of Covid-19, but business leaders must consider the unique impact it is having on their sector and the distinct needs of their people and business, along with the insights that can help you act in this crisis. While there’s no doubt that the global economy is in crisis, there are reasons to be optimistic that we may be able to avoid the worst-case scenario. Previous crises have shown governments that countries can overcome the impact of a demand-driven recession with government spending. This has led to many governments focusing on funding programmes to industries, businesses and workers throughout the pandemic.

Furthermore, some sectors may benefit from the crisis such as food retailers, e-commerce and certain areas of the healthcare industry, offering some economic growth to counter the damage caused by the pandemic. There is also the fact that for instance, once a vaccine is developed, we may be able to see an end date when all restrictions are lifted.

Combined, this means there is a chance that the global economy could bounce back sharply once the pandemic is over.

UK outlook

To get an insight into the business, economy and employment challenges created by COVID-19 and what you can do to make your business more resilient, take our SME Business Survey.

HR, health and safety support

For more guidance articles and resources relating to the pandemic, visit the HR Solutions Coronavirus Advice and Guidance for Employers section.

HR Solutions is here to provide you with advice and support on any employment or workplace safety related matter. Find out how we can help your business by calling us on 0844 324 5840 or contact us online.

 

 

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