The Global Economic Implications of Coronavirus

March 25th 2020 | Posted by phil scott

The Global Economic Implications of Coronavirus

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The global economy has received a massive hit from the Covid-19 crisis that is currently enveloping the planet.

It may seem incongruous to be talking about finance when there is such a serious threat to human well-being but the virus could do a lot more damage in the long-term if we do not pay enough attention to economic issues.

Business owners, FDs and CFOs could find themselves in the midst of a losing battle if the financial impact of Covid-19 is not fully addressed.

The financial threat of the current situation

The countries that have been most heavily affected by the global pandemic so far have introduced stringent measures in an attempt to control the spread of infection. These countries include Italy, Spain and France. Although China was hit hard by the virus after a 3-month lockdown they are now recording no new cases within the country.

In the UK, we are now effectively in shutdown – and people have been advised to practice social distancing and stay away from social spaces such as bars and restaurants.

These actions may help to control the pandemic eventually but they will also be economically devastating to many businesses; a fact which FDs will become increasingly aware of as the impact continues to be felt.

Current financial measures in countries

So far, the hardest-hit country in the west has been Italy. The numbers of people needing treatment for Covid-19 problems has placed severe strain on the healthcare system which has prompted the government to operate a shut down in the country. Similar systems are now being adopted in other European countries.

In an attempt to alleviate some of the potential financial impacts of these decisions, governments have introduced different measures. This includes the suspension of private debt payments such as rent in Italy and the introduction of a short-time work allowance together with credit assistance, guarantees or tax deferrals for companies experiencing problems in Germany.

The way forward

At some point, Covid-19 will either recede or be controlled. We do not know when this will happen. Until then, strict measures will continue to be used. This means that there is no way that a severe recession can be avoided. This is a major concern for the FD of any business.

Given that the predicted slowdown in the global economy is estimated at $1 trillion, what can be done to reduce the impact as much as possible? It’s clear that targeting demand is not an adequate answer because there is not a natural lack of demand; quarantines are in place. It makes more sense for governments to instigate measures that are aimed at saving businesses and banks from entering bankruptcy.

These measures could include the introduction of a short-time work allowance, like in Germany, to compensate for underemployment of the workforce. Tax relief for businesses, and guarantees of borrowing, could also prove useful.

So far, the UK has announced a £350bn package. The US administration is discussing its plans in more detail. So far, it has said it has a $1 trillion proposed rescue plan. This includes $300 billion towards helping new businesses.

Whatever relief is agreed, it’s certainly an extremely worrying time for businesses and finance professionals. The repercussions will be felt long after Covid 19 is brought under control.

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