Coronavirus Pandemic and the Global Economic Cost

In the last century, the world has witnessed two major world wars and it was espoused by many that the third world war would be fought for water. Little did the world realize that it would be against an enemy which is technically invisible (or is it so ?), unite various countries of the world and which has waged war against the human civilization, so much so that the very existence of humans in this world might be at stake. Yes, the Coronavirus pandemic of 2020 is nothing short of a war.   

The Origin …

The Coronavirus reportedly first surfaced from the largest animal market in Wuhan city in the Hubei province of China sometimes in November 2019. It is believed that it emanated from the bats and later got transmitted through other animals like snakes or pangolin into the human body. Chinese people are known to eat anything and everything with their backs to the sun and these eating habits have earlier also initiated in transmission of deadly infectious diseases among humans.

However, the present outbreak seems to be slightly different. The way the Coronavirus seems to be mutating so fast provides the needle of suspicion that it has been artificially created by the Chinese having some sinister design in mind. Sometimes back a Harvard Chemistry professor was arrested in the US for failing to disclose his links with the Chinese government in getting grants from China and allegedly smuggling some vials containing harmful microorganisms to Wuhan University.

Though some science journals have stated that the Coronavirus is a natural virus and have ruled out human intervention in the production of the virus, still the suspicion doesn’t die away since the Chinese eating habits are from time immemorial and any such major spread of a life threatening virus would have occurred much earlier and people are not too sure that natural viruses have so much more mutating power that this Coronavirus has shown.

The Outbreak …

Though the Coronavirus reportedly surfaced in November 2019, the news was suppressed by the Chinese government till end of December 2019 in spite of the fact that a local doctor first brought this to the notice of the Chinese government in November 2019 itself. China, which is known for its secrecy under the communist regime for long, in fact reportedly punished the doctor for reporting the outbreak and has since been reportedly poisoned to death. By the time, however, the situation was out of control and vast areas of China had to be forcefully locked down in order to contain the spread.

The reason the Coronavirus seems to be so deadly is because even though the symptoms of the virus seems to be very much similar to the common influenza virus, viz., dry cough, running nose, sore throat, fever and berating trouble, it may be present within a human body with a gestation period of up to two weeks without showing any such symptoms. By the time the symptoms show up, it might be too late and the lungs could have been damaged beyond repair.

Though initially started in China, the Coronavirus has spread to other continents beyond Asia to Europe and North America. More than half of the number of Coronavirus cases as on end March 2020 is from Europe and approximately one-fourth each from Asia and North America. Interestingly, the number of Coronavirus cases in the continents of the southern hemisphere is presently negligible as compared to the continents of the northern hemisphere, may be due to the ongoing summer season in the southern hemisphere and the virus is reportedly not very active in replicating in higher temperatures.

Though number of cases in Europe presently is nearly half of the total number of cases globally, number of deaths in Europe is nearly three-fourths of the world mainly because a considerably large number of patients were unable to get the proper treatment due to the limitations of the healthcare facilities in those countries and also due to the fact that a considerable portion of the patients were in the higher age brackets. The extent of the damage caused by the virus is such that the countries boasting of one of the best healthcare facilities in the world were taken aback and the resources were highly inadequate in front of the deluge of cases they had to encounter.  

Negligent Authorities …

Even though the Coronavirus outbreak was so severe in China when the world came to know about it, the inaction of global authorities like the World Health Organization (WHO) is very deplorable to say the least. WHO was initially hesitant to call it a pandemic let alone an epidemic and when it did declare it a pandemic in the second week of March 2020, the damage was already done as it had spread to all the six continents of the world naturally inhabited by humans. By the end of March 2020, the disease COVID-19, as it is technically called now, has spread to almost all the 200 countries of the world with over 800,000 infected and over 42,000 deceased. Till date we haven’t heard anything form the United Nations regarding this Coronavirus pandemic.

The Fallout …

Interestingly, even though the Coronavirus originated from China, they have now been able to control the damage to a large extent even though reportedly over 80,000 Chinese people got affected and over 3,000 died. The epicentre has since then shifted to Europe and America. Italy, Spain and France seem to be the most affected due to this pandemic with over 13,000 dead in Italy and now USA has surpassed in the number of people affected which crossed well beyond the 200,000 mark. Other major affected countries due to this pandemic are Spain, Germany, France and Iran. Since there are no known vaccine and cure for COVID-19, the only remedy seems to be self-isolation and rigorous testing so that the disease does not spread among the masses. However, the initial issue was the unavailability of enough testing kits globally. South Korea was among the few countries which took testing quite seriously and has been able to contain the virus much more effectively than many countries. Of late USA has started massive testing and as a result of which many more cases are being reported.

Indian scenario …

The scenario in India is expected to be very bleak since India doesn’t have enough testing kits and the healthcare infrastructure in the country is grossly inadequate in order to tackle such disasters. Any community transmission of this disease among the masses would be a catastrophe given the fact that India’s population is among the largest in the world with the largest population density globally. Most experts feel that that the peak outbreak in India is expected to reach in end April 2020 based on the present trend of the outbreak in the country. Thankfully, the country has tried to effect a complete lockdown of the country from the fourth week of March 2020 for a period of three weeks and by the end of March 2020 the reported number of people affected is in excess of 2,000 and counting and number of deceased around 55 and counting. The reason for a relatively low number of cases in India is because of the fact that India has not been testing enough and the tests per million citizens is among the lowest in the world. If anything, which can save India is its herd immunity, high temperature and BCG immunization prevalence. Chloroquine sensitivity of Indian subcontinent population might resist the viral replication.      

Financial markets meltdown …          

It just took a Chinese virus for all the bulls in the stock markets running for cover. On an average, the leading stock market indices of the world tumbled around 30% during Q1 2020. DJIA was down by over 32% during Q1 2020 to less than 21K levels, FTSE down by over 33% to below 5500 levels in Q1 2020 and Nikkei 225 fell by over 25% to 18K levels. Interestingly, fall in the Shanghai Composite was only around 12% to below 2750 levels even though the virus originated from the Chinese mainland. In fact, the Shanghai Composite gained by few percentage points during the fag end of the quarter. Fall in the Indian flagship stock index, Nifty was much sharper which fell by around 39% to 8000 levels. Much more pain is expected in the stock markets in the near future this quarter as the true damage to the economy due to the Coronavirus is yet to be ascertained. Experts feel that the fall would be much more severe than the 2008 crisis when flagship stock market benchmarks fell by over 50%.  

Financial stimulus all over …

There has been a flurry of stimulus packages globally by governments of major countries to keep their respective economies afloat during this crisis as most governments had to declare extended periods of lockdown in order to prevent the spread of Coronavirus since till date no vaccine or medication is available to combat the dreaded infection. Suspension of all activities except production of basic food, medicine and basic essential services has brought down the economic machinery of leading countries to a standstill resulting in major fall in production leading to a global recession in the coming months and quarters.

Analysts estimate a minimum global loss of USD 3 Trillion due to this pandemic which is greater than the total Gross Domestic Product of India. Among the countries declaring economic stimulus is US declaring a stimulus package of USD 2.2 Trillion, UK declaring a package of GBP 350 Billion, Japan declaring a package of JPY 30 Trillion, China declaring a package of USD 79 Billion and India declaring a package of USD 23 Billion.

These stimuli, though grossly inadequate in many countries, has been necessary since production has come to a standstill in most cases due to the continuous lockdowns, large scale unemployment due to mass layoffs and complete decimation of certain industries like tourism, travel, airlines and hospitality sectors. Daily wage labourers have lost their jobs, employees had to take pay cuts and self-employed have to live with prolonged period of no income. Most affected are the entrepreneurs and Micro Small and Medium Enterprises (MSMEs) where majority have to shut shop due to this crisis. 

Such is the long term effect of this Coronavirus crisis that analysts expect the world GDP to contract by around 3.33% which means considering the global GDP to be around USD 90 Trillion, the world is expected to lose around USD 3 Trillion in a years’ time due to the prevailing crisis !

Crude melts …

The woes of the financial markets has been aggravated by the slump in crude oil prices in the first quarter of 2020 mainly due to the competition between Saudi Arabia and Russia in grabbing more market share of the global crude oil demand and an aggressive strategy of Saudi Arabia to increase its global market share by increasing production and reducing prices. This is in spite of the global fall in demand of crude oil due to decreased economic and industrial activity in Q1 2020 on account of the Coronavirus pandemic. Brent Crude prices plummeted by over 60% in Q1 2020 to a level of USD 25.78 per barrel and WTI prices plummeted by over 66% in Q1 2020 to a level of USD 20.48 per barrel by the end of March 2020. The meltdown in the crude oil market seems to continue well into Q2 2020 since US Energy Information Administration (EIA) forecasts OPEC crude oil production to be on an average 29.2 million barrels per day from April through December 2020 as compared to an average production of 28.7 million barrels per day during Q1 2020. Interestingly, the EIA forecasts OPEC crude oil production will rise to average of 29.4 million barrels per day in 2021.  

INR takes a beating …

Meanwhile one of the largest casualties of this Coronavirus crisis is the Indian Rupee INR. INR plummeted by around 7% in the first three months of the year, with USDINR reaching a staggering level of 76.23 by the end of March 2020 from a level of 71.23 at the start of the year with no signs of stabilizing at those levels. This is in spite of India’s forex reserves close to USD 500 Billion, an all time high and the Reserve Bank of India announcing USDINR Sell Buy Swap to the tune of USD 2 Billion which would enable it to Sell USD Spot and Buy INR Forward 6 Months in order to defend the INR slide. Similar is the story for other major currencies, viz., EUR, GBP, JPY and CNY with respect to the INR. EURINR appreciated by over 5%, GBPINR appreciated by 1.3%, JPYINR appreciated by over 8% and CNYINR appreciated by around 5% in Q1 2020 in line with the appreciation of USDINR. This would act as a double whammy for the economy as along with the reduction of the GDP growth this fiscal due to the crisis, India’s imports would be dearer stressing further the fiscal deficit of the country.

 Silver lining around dark clouds …

Amidst all this depressing news around of fear of losing ones life and livelihood, one cannot but ignore the fact that this crisis has resulted in nature calling for a reset or reboot for itself and has regained some of its foothold due to major climate changes like ozone layer depletion, melting of the glaciers and in general increase in the global temperature. The lockdown has resulted in a lot of industries getting closed, albeit for a short period of time, and hence less pollution to the environment. Suddenly the sky looks much clearer, the waterbodies looks cleaner and breathing in times of pollution is much easier.

Dolphins are seen swimming in the canals of Venice and the backwaters of Kerala, peacocks are seen dancing on the streets of Mumbai and jackals are seen calling on the humans to check their whereabouts in the suburbs of Kolkata to name a few. Little did we realize that as human beings we had failed the planet due to our greed and urge to control everything that we forgot apart from us there are numerous other genus and species which call mother earth as their home. It is the responsibility of the human species, due to their superiority and rational power, that they need to care about all other species dwelling on this earth.

Analyst: Sanjoy Choudhury +91 9821054331 [email protected] Report Date: 3-Apr-2020 Views are personal