Here’s How Much the Coronavirus Is Costing the World (So Far)
Stocks are plunging, vacations are being cancelled, and that's just the beginning.
The other devastating effects of the coronavirus
Published Mar. 5, 2020
The coronavirus isn’t just costing lives: it’s also costing livelihoods. As the death toll rises around the world and the disease spreads to North America, it could cost the global economy millions in lost income, stock-market drops, tourism dollars, and more. Here’s what this virus is doing to us financially—and has the potential to do if the crisis worsens.
The Chinese economy is virtually paralyzed
This will have a deep and profound effect on the global economy, says Tenpao Lee, PhD, a professor of economics at Niagara University. “With our global economy, and the fact that China makes up about 16 per cent of that, the economic ripple effects will be felt around the world,” Lee explains. “The global supply network has been broken, and a significant portion of the global economy is halting.” Lee believes that global recession—affecting developed and developing countries—is inevitable in the first two quarters of 2020.
Global equity markets lost trillions in value during the week of February 24, says Andrew Schrage, CEO and co-founder of Money Crashers. “Much of that value will return as the initial panic subsides and central banks take emergency action to assuage investors’ fears, but that’s not much comfort for weak-kneed investors gaping at their shrunken 401ks,” he says.
Airlines are suffering
The travel and logistics sectors have been the hardest hit, Schrage says. In particular, airlines and transportation companies have lost many billions in market value since the beginning of the year. “The shock is worse than anything that’s happened since 9/11,” Schrage says. “Depending on the extent and duration of the pandemic, the long-term impact could wind up being worse than 9/11.” Speaking of which, here’s how to get a refund if a world crisis forces you to cancel a trip.
Since many production factories are closed, the aggregate supply curve will shift to the left with higher prices and lower quantities, Lee says. “On aggregate demand, consumers staying home and spending less money to fuel the economy means it will also shift to the left with lower prices and diminished quantities of items sold, which also points to a possible recession,” he explains. “Put aggregate demand and aggregate supply together, and we are most certainly looking at a recession.”
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Interest rates are lower
In an attempt to make consumers and businesses feel more confident about the future, the U.S. Federal Reserve lowered interest rates. “The full emergency 50 basis points reduction is the first since the financial crisis, a sign of how serious central bankers regard the downside risks to the economy,” says Mark Hamrick, a senior economic analyst at Bankrate.com. “At issue is how much this inoculation can protect the economy and support the financial markets from a public health crisis and supply constraints radiating out from China.” But now that the benchmark federal funds rate target is 1 to 1 ¼ percent, it must be noted that the Fed’s most reliable ammunition—their lower rates—are dwindling, Hamrick says. The other challenge involves how the Fed may take back the rate cuts once the outbreak and economic damage is behind us.
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Payments are late
Many businesses large and small have to wait for net payment terms before getting paid, says Steven Lee, cofounder of invoice finance marketplace Crowdz. “With these types of global incidents, the delay in revenue further pushes out when a company gets paid,” he explains. “Due to the loss of revenue from companies, factory shutdowns or stocks taking a hit, and fear of global catastrophes like coronavirus have a huge impact on business cash flows.”
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Travel is being cancelled
Currently, that mainly involves business trips, according to a recent series of surveys with Reservations.com. The surveys found that 43 per cent of people would definitely cancel an international business trip; 63 per cent probably, very probably, or definitely would cancel a business trip; and 35 per cent of those in the 45- to 54-year-old age group would definitely cancel a trip, though this age group was the least likely to commit to canceling. While 66 per cent of Americans responded that they wouldn’t cancel a vacation at this point, that may change in the coming weeks as more cases emerge around the country. If you’d prefer to stay closer to home and potentially minimize your risks, check out the 10 places in Canada every Canadian should visit.
Events are no more
Fears of the coronavirus have prompted many closures, including even the Louvre. The World Health Organization says that coronavirus isn’t a pandemic yet, but many people are still scared of crowded areas. (This is the difference between an epidemic and a pandemic.) As a result, major events—including the Six Nations Rugby Match, Facebook’s Global Marketing Summit, Japan’s Azalea Festival, global fashion weeks, the China Grand Prix, and the CERAWeek energy conference—have been cancelled or postponed. Plus, there are concerns that the 2020 Summer Olympic Games, which are set to be held in Tokyo in July, might be canceled. That would be an enormous loss not just for the athletes but also for Japan’s economy, networks around the globe, and related industries.
Halted Hollywood productions
Excited about the next installment of the Mission: Impossible franchise? Sorry, but you might have to wait a little longer to see it. Production in Italy has been halted, due to that country’s surging coronavirus cases, and that may affect its 2021 release date. While experts aren’t yet sure what kind of impact the coronavirus will have on the entertainment industry as a whole, according to Business Insider, it’s not looking good. Aside from production delays, theatres in China are closed, and this will affect Hollywood greatly. China is a massive market for films—especially those that need to make back their $200 million production budgets. Mulan‘s live-action remake, for example, which is due in theaters in the United States and around the world March 27, may not make it to China, which was expected to be its largest market. Next, find out the 14 diseases, aside from coronavirus, that you can prevent just by washing your hands.