COVID-19, which first broke out in Wuhan, China in December 2019, is shaking the world amid fears of infection. Due to the high infection rate of COVID-19, it has become mandatory to wear masks when going out, and governments are demanding their citizens to stop outside activities as much as possible. As such, it is no exaggeration to say that, the whole world is in a state of self-isolation. Social distancing has become a necessary in our daily lives. However, the world’s economy is also experiencing an unprecedented crisis, with everyone staying at home to avoid the virus this nearly puts a stop to all social and economic activities. Small and medium sized businesses enterprises as well as large companies around the world country are faltering. What is the current situation in the world’s economy, which has been cornered in the aftermath of the COVID-19?
1. We Are Losing Jobs to COVID-19
Global consumption of everything is plummeting. Such a rapid decrease in consumption will have a direct impact on the rising unemployment rate. It is the airline industry that has been hit hardest by the sharp drop in people flying. This is because countries have started to restrict the movement of people between countries amid fears of the COVID-19 epidemic. Norwegian Air Shuttle has decided to suspend its entire European flight through the end of April, except for flights out of London. In addition, 50% of the employees of the airline industry will be temporarily laid off. Also, British Airways, a British airline company, recently told its employees that it can no longer maintain the current level of employment. The Wall Street Journal reported on March 16th that U.S. airline companies demanded $50 billion in financial aid from the government. That is more than three times the amount of bailout money the airline industry received from the government after the September 11st attacks. The WSJ reported that major airlines have warned the government that without help of government, they could go bankrupt by May. Large-scale layoffs in each industry as well as in the aviation industry are expected to be inevitable. Former White House Council of Economic Advisers chairman Kevin Hassett said in an interview with CNN on March 16th that up to 1 million jobs in the U.S. could be lost in March alone due to the COVID-19 crisis. On the same day, the U.S. news station CNBC predicted that up to 3.5 million jobs would be lost in the U.S. alone if the situation continues. Meanwhile, the employment problem in China, the origin of COVID-19, is even worse. The U.S. CNBC reported on March 16th that the COVID-19 aftermath caused 5 million unemployed people in China. According to data of the China’s National Bureau of Statistics, China’s urban unemployment rate rose to 6.2% in February from 5.2% in December last year and 5.3% in January this year. China’s urban unemployment rate, which exceeded 6% in February this year, shows the worsening job situation in China, given that it has maintained 4~5% of urban unemployment over the past 2 decades. Economist Intelligence Unit analyst Dan Wang had predicted that 9 million people in Chinese cities will lose their jobs this year due to the influence of COVID-19.
2. Real Economy Crisis in Manufacturing Industry.
European Commission has said the EU’s real gross domestic product growth this year will fall by around 1%, down 2.5% from before the pandemic started. The Economist predicts GDP growth will fall to 8% in the worst case scenario as both demand and supply curves continue to plummet. The COVID-19 pandemic has thus began to heavily weigh on the economy around the world. This can be seen through the global auto industry as well. Volkswagen, FCA, Renault, and PSA, the European ‘Big Four’, have declared nearly all of its factories in Europe to shut down. According to Reuters on March 17th, German Volkswagen, the world’s largest automaker, announced that it will suspend production of almost all factories in Europe, including Germany, for two to three weeks from the March 23rd due to the COVID-19 crisis. Renault has decided to suspend operations at all 12 factories in France for an indefinite period. All 15 PSA facotries in Europe and 8 for FCA, which are the most of the production facilities in Europe, were to be shut down for 2 weeks from the March 16th to 27th. They cited difficulties in procuring parts and a decrease in demand as reasons for the suspension of operations. The suspension of operations at European auto companies means the global supply chain could collapse.
Auto plants in China, which had already stopped after the COVID-19 incident, were restarted in mid-February, but their utilization rate is only about 20~30%, well below the target 80%. This is due to the continued delay in workers’ return and the slow recovery of the supply chain. If the global supply chain and demand are cut off at the same time, China’s production disruptions will likely be prolonged. Industrial output plunged 13.5% in January-February compared to the same period a year earlier, according to data from China’s National Bureau of Statistics on March 16th. The National Bureau of Statistics analyzes this as it is because most industrial facilities in January-February were not operating due to the aftermath of COVID-19.
Economic conditions in the U.S., as well as in Europe and China, have hit a major snag. Boeing, a symbol of the U.S. manufacturing industry, and a major defense manufacturer, also ended up shutting down its plant in the wake of COVID-19. Boeing has announced on March 23rd that it will suspend operations of its major plants in Washington, including Puget Sound and Mosses Lake, which produce long-range aircraft, including the Boeing 777 jets, for 2 weeks. Boeing’s latest shutdown of the plant stems from the recent death of an employee who was infected with COVID-19. Experts predict that the global economy is already entering a recession. It warned that if a vicious cycle occurs in the order of supply chain collapse and demand reduction, corporate bankruptcy, restructuring, job loss and demand reduction, global consumption reduction could shift from a temporary phenomenon to long-term and overall structural problems.
3. Is COVID-19 Really Triggering the World’s Financial Crisis?
Circuit breakers have been put in place in the U.S. Stock Index Futures market. Circuit breakers are systems that temporarily freeze the selling of stocks to cushion the impact on the market when stock prices drastically drop. On March 22nd, Standard & Poor’s Depository Receipt and Dow Jones Industrial Average Futures fell nearly 5%, the price limit, shortly after the opening of their out-of-hours trading on the Chicago Mercantile Exchange, and Nasdaq Futures fell 4.9%. This triggered the circuit breaker. Oil prices also fell as fears of the spread of COVID-19 gradually grew. International oil prices plunged 27%, freezing Russia, the Middle East, and South America from a rapid decrease in imports. Brent oil fell 6.6% to $25.06 a barrel. Kenneth Rogoff said it would be another threat from the financial crisis in that it simultaneously blocks supply and demand.
However, some argue that the global stock market crash caused by COVID-19 is not as serious as it seems. In an interview with Yahoo Finance on March 10th, Berkshire Hathaway chairman Warren Buffett said the recent shock from the global financial market was not as serious as the New York Stock Exchange crash, called the ‘Black Monday’, and the global financial crisis that began in earnest in 2008. Opinions are still divided over whether the COVID-19 incident triggered another financial crisis.
Bill Gates, who gave an 18-minute speech on the subject of infectious diseases in 2015, said infectious diseases are more catastrophic than nuclear war that what we should be wary of is not missiles, but microbes. The fact that the transmission of the virus is scarier than nuclear war has now been proven by the case of COVID-19. COVID-19 is spreading through people and now is even devastating the global economy. No one knows when the COVID-19 pandemic will end and how much casualties and how much economic damage it will cause. Only time will tell and the time can solve. However, we all need to come up with wise measures to restore the global economy quickly after the end of COVID-19. < 저작권자 © 중앙헤럴드 무단전재 및 재배포금지 >