What's in store for the global economy after coronavirus is over?

Delhi Apr 06, 2020, 05.41 PM(IST) Written By: Shaurya Bishnoi

Coronavirus, global economy Photograph:( AFP )

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The current situation is like shock therapy and in the post-Coronavirus era, there will be a tectonic shift in the world economic order.

The world has come to a standstill while the global economy and markets are in a tailspin. While the global economy is possibly heading into a recession, there is still hope of quick recovery if the virus starts subsiding in a month or two.

Central banks and governments are going all out to contain economic collapse. Still enough damage is caused and the economy can be as bad as the 2008 crisis or even worse. Although if we look across the globe different areas are painted with a different brush. So, let’s try to find out what’s in store for the world in an era after the Coronavirus crisis is over.

The US damaged severely but its growth magnets still intact: An optimist of all times, US President Donald Trump has also declared this is bad and more than 100,000 people can die in the US. Various estimates suggest that the US economy is slipping into recession while unemployment is shooting up. 

Its condition will be critical but will recover strongly because before Coronavirus crisis struck, the world's largest economy was on a strong footing. Its GDP grew at a moderate pace, unemployment was at a 50-year low and its global banks were strong. So, a strong foundation gives hope of a revival. Besides this, its three growth magnets would continue to attract the best talent. The top layer of finance, tech and show business would love to work in Wall Street, Silicon Valley and Hollywood now, even at faster rates because the rest of the world is relatively more damaged. Therefore, it is likely to emerge out of ashes like a phoenix.

China:

Even before Coronavirus pandemic struck, the Chinese GDP growth rate was at 30 years low, its economy was showing cracks and trade war was damaging the Chinese economy. When the virus entered in this mix it slowed Chinese economy even further. During January-February, its industrial production figures and its retail sales data were very gloomy. It became clear that there will be a contraction in the Chinese economy during the January-March quarter. However, China was able to contain it just in Wuhan so the situation in the country is getting better. Economic indicators like PMI, shipping data, road congestion is reported to be improving. This implies that economic revival has begun. In fact, various reports predict that China will be the fastest-growing economy this year. Although risks associated with China are global and there could be a political backlash due to lack of transparency and fall in export demand (which contributes to 20 per cent of its GDP). So the Chinese economy showed signs of crack before virus but it was able to contain virus quickly. Therefore cracks did not break open and the economy could very well soon be back on track. Also with Coronavirus, the attention of the US has temporarily shifted away from the trade war and its high trade deficit with China. This will reduce China's risk for some more time.

India may recover quickly if the virus is contained in stage 2: In India, things were bleak even before Coronavirus knocked at its doors. GDP growth fell from 8 per cent to around 5 per cent, credit crunch, poor business sentiment, fiscal deficit breaching target, uneven monsoon and most importantly a fall in consumption were the risks already present. Even if the pandemic becomes worse, there is a possibility of economy quickly coming back on track and there would be lower damage due to coronavirus as compared to many other global nations. So, the increase in unemployment and bankruptcies would be relatively less than the rest of the world. The situation of NPAs was resolved to a large extent even before virus so that provided some cushion. Fall in oil price would also provide some relief. All that will ensure quick recovery and inflow of foreign money. Moreover, various estimations indicate that besides China, India can be the only major country to have positive growth. 

So, the April-June quarter will be problematic but after that things will start improving and in October quarter we may see growth speeding up.  

Europe:

The European economy was already weak due to double whammy of a trade war and Brexit. Germany, UK even went in contraction for a quarter last year, even for October-December quarter UK GDP stagnated. Due to the ageing population coronavirus shook the continent and can cause long-lasting impact. Brexit negotiations are not on the best footing also. European Union is unable to come up with joint action which indicates the underlying tension between the member states. So all of this poses a serious question about its recovery for a very long time.

Gulf:

Gulf countries are facing a tough time as a fall in oil price will put huge pressure on income. Pilgrimage tourism, holiday tourism and expo events in UAE, Saudi and Iran will take a hit due to Corona pandemic. Since they need to give relief packages, there will be a strain on fiscal deficits. Postponement of Dubai 2020 Expo can impact UAE's plan to diversify the economy away from oil and tensions in OPEC+, with Saudi Arabia and Russia also pose concerns. 

Stock Markets:

Go for major indices of the US, China and India, while Europe and Gulf countries can be avoided for the time being. Once virus peaks and markets hit bottom, you can also start dipping in mid-caps.

Sectoral Situation:

As people will be more concerned about health, there would be a large increase in health insurance and hence insurance and healthcare sector would gain. Some banks are quite stable so they would survive but weaker ones will struggle so the wave of mergers and acquisitions in the financial sector can be in offing. IT companies, providing specific services like video streaming, e-commerce, video and teleconferencing stand to emerge victorious as well. For internet giants, advertising revenue can take a hit. But they stand to gain sensational insight in the human mind as to how it reacted during different phases of virus and lockdown. This would help them significantly in attracting user on their sites, retaining them and even influencing them. Cargo and Shipping Industry will recover quickly as people may hesitate to go out, but would continue ordering online. New players like automakers are entering in biotech and new innovations can revolutionise the biotech industry. 

Oil Industry:

A fall in oil prices would also reduce the demand for its substitute goods like alternative sources of energy which would impact their development. Since lockdown shows the viability of working from home, commercial real estate can suffer. Due to the rise in unemployment, there isn't any likely rapid recovery in FMCG sector but high ticket items like real estate, passenger vehicles and luxury goods will take even longer to recover. Recovery in Aviation and Tourism will be slow due to the double whammy of rising unemployment and fear of the pandemic.
For individual stocks company’s management can be the best gauge. As in such time, past data may not be able to indicate future development but efficient, creative management can give assurance that will come up with a way to navigate this tide.

The current situation is like shock therapy and in the post-Coronavirus era, there will be a tectonic shift in the world economic order.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)