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Continuing COVID-19 challenges with unclear ending

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Downtown Rome- the coronavirus fears have turned major cities into ghost towns

 

It is now nearly three months since China reported the case of a deadly new virus to the World. Since then new cases of the coronavirus are being reported daily around the world.  This virus, is known as SARS-CoV-2,  causing COVID-19 disease.China has since the outbreak experienced a deep social health related challenge, with more than 126,000 cases and more than 4600 deaths. 


However, China now claims that they have stabilized the situation with the implementation of extraordinary public-health measures. The COVID-19 virus unfortunately quickly moved beyond China’s borders. 


 Many other major markets are now plagued with this virus: East Asia especially South Korea, with more than 7,000 cases, as well as Singapore and Japan, the Middle East - in Iran, with more than 9000 cases,  Europe in Italy, with more than 7,300 cases, but with widespread movement across several continents, and the United States, with more than 900 cases and India having 75 cases. This virus has spread in a region where millions of people travel every day for social and economic reasons, making it difficult to prevent the spread of the virus. In addition to these major complexes, many other countries like Germany, UK and France have been affected by the virus. 


The White House announced on Wednesday that non-U.S. citizens won’t be allowed to travel from Europe to the U.S. for 30 days, in an unprecedented attempt to stop the spread of the new coronavirus. The travel suspension does not however apply to the 
United Kingdom. 

 


Global markets
 In Frankfurt, the president of the European Central Bank warned that the coronavirus could trigger an economic crash as dire as that of 2008.


Global stock markets including Sri Lanka have been sliding on fears the new coronavirus would severely affect economic growth. U.S. stocks measured by the S&P500 were down nearly 5 percent on Wednesday, and after Mr. Trump’s address Investors panicked about the hit to the economy from cutting off travel from Europe, because  foreign exchange liquidity can be impaired in times of higher global risk. 


The global slowdown would continue to affect small and mid-size companies more acutely than the big companies. Less developed economies would also suffer more than advanced economies. And not all sectors are equally affected in this scenario. Service sectors, including aviation, travel, and tourism, are likely to be hardest hit.  Airlines have already experienced a steep fall in traffic on their profitable international routes. In this scenario, airlines and the hospitality sector will miss out on the summer peak travel season because travelers have put off all discretionary spending because of the worry about the pandemic.

 


Consumer demand
In consumer goods, the steep drop in demand will likely mean delayed demand. This has implications for the many FMCG companies and their suppliers that operate on thin profit margins. This will significantly impair their liquidity. Market liquidity is an important feature for all financial markets. 


 Hopefully if demand returns in June as concern about the virus diminishes with the coming of summer in the West, the markets will hopefully recover by Q3. Oil and gas, however will be adversely affectedas oil prices stay lower than expected due to the drop in demand. 


However the impact on supply chains that go through China will be a worry throughout 2020. Because the factory shutdowns in China,  have already been felt across the global supply chain. In the final analysis, nations are only as strong as their bilateral partners,and firms are only as strong as the societies of which they are a part. Therefore collectively they need to figure out how to support the response effort to help nations to wade through this unprecedented global health crisis.
(The writer is a thought leader)

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