The coronavirus epidemic has covered all continents and can radically restart the activities of entire industries, industrial and agricultural companies, and the psychology of consumption in general.
The global economy is affected by the fear of the COVID-19 coronavirus rather than the actual rate of disease. In a person who is constantly in a state of fear, both psyche and behavior change. The same happens to people who, at risk of illness, make responsible decisions. The established balance of supply and demand is upset in the economy.
Today, China generates 25% of the total product of the world’s total manufacturing industry. If we recall the similar indicator of China in 2003, when SARS spread, it was only 11%. China today is an important link in international supply chains.
The shutdown or even suspension of production facilities in China will slow down economic activity around the world and negatively affect the productivity of many companies – links in the supply chain.
The configuration of supply chains can be varied. But the trade war between the United States and the People’s Republic of China has demonstrated that such variability in delivery patterns is a time-consuming process.
The new adjustments, thanks to certain technologies, dampen the unfortunate consequences of the suspension of production activities in China. But they are not able to fully compensate for these consequences.
One of these technologies is the transfer of workers from the office to work at home. Some sectors of the world economy are capable of working even under quarantine conditions. In this case, the negative effect will be reduced, but not completely neutralized.
What is happening with demand today?
The wave of fear lowered people’s demand for certain services. For example, tour operators say people travel less. Conversely, online sales are growing rapidly. People are distracted from the fear raging outside the window.
This example demonstrates the fundamental difference between today’s situation and the state of affairs during the time of SARS. So, online shopping will significantly neutralize the impact of the coronavirus pan-epidemic on demand.
Since the world economy has just begun to rebuild, people still feel all the negative effects of what is happening. But these effects are already rather weakened in comparison with the aforementioned epidemiological situation in the past. This is facilitated by the activities of online marketplaces Amazon, Netflix, and online gaming platforms.
The type of goods offered by companies for sale is also a factor influencing demand. Luxury brands are hit hardest. These product groups do not buy online. People do shopping by going to shops, which they perceive as a holiday and a source of pleasure. And the purchase of everyday goods on the Internet is already emerging as a long-term sustainable trend.
In emerging markets, the epidemic is mirrored by falling demand for raw materials. But if the losses in this situation can be compensated by the release of raw materials to the accumulated demand, then irreversible processes are taking place in the energy sector. Losses of transport companies due to canceled freight transport flights can no longer be compensated for. And if we are talking about a decline in GDP by USD1 per person in China, then this will be reflected a greater extent on global demand than a similar decline in England.
A general characteristic of the indicators of global inflation as a consequence of the epidemic will be its decline. Here, the decline in inflation is due to insufficient demand for raw materials, and hence the decline in its price indicator. Insufficiently high demand for hotel services will lead to a drop in prices.
However, in the short term, the prices of end products will rise in supply chains. Considering that the resulting interruption in supplies is a temporary phenomenon, then manufacturers are unlikely to go for an increase in purchase prices.
An example of this is the recent trade war between the United States and China. The companies did not dare to raise prices to compensate for the payment of higher trade duties. Coronavirus will correct long-term changes in the modern economy. But when the pan-epidemic begins to decline, all fears and fears will subside.
What are the long-term implications?
First conclusion: global supply chains have a weak spot. The development of technology has already pushed production to localization. The factory in New York, where robots work, replaces the factory in Shanghai, where people work.
Placing production closer to the consumer reduces emissions. This localization process was already proceeding naturally. This means that after the epidemic, the investment may start to grow as supply lines are reconfigured.
The second conclusion: people who have had to work remotely may like it. And companies will suddenly discover that the staff is doing a great job out of the house. Changing work habits will change the demand for office real estate, transportation, and technology.
Retailers, airlines, and restaurants. But also oil producers, mall landlords, and a helicopter tour operator. These and the other 330 US companies that filed for bankruptcy this year are more likely to blame Covid-19 as the reason for their collapse.
Companies faced serious financial problems long before state governors ordered the shutdown of support facilities to contain the coronavirus.
Also, for example, Mullinkrodt owned opioid factories, and some Catholic dioceses filed for bankruptcy to get rid of huge legal obligations. But in their explanations of the reasons for the bankruptcy, the negative factor of the outbreak of the pandemic appeared.
Most will try to reorganize and emerge from court smaller and less-indebted, as companies like preppy retailer J. Crew and oil producer Denbury Resources have already done. They closed businesses for good.
The coronavirus epidemic is negatively affecting the global economy. This affects entire industries and individual companies. So, over the past few months, several large companies have filed for bankruptcy. Ten large companies have declared their bankruptcy. The reason was the coronavirus epidemic.
British fashion retailer Debenhams is shutting down business in Ireland. The doors will be closed by 11 shops. The total number of staff working in the network is over 20,000 employees.
Along with large fashionable stores, the retailer prepared all of its smaller outlets for sale. As the owners of the chain said, their decision to stop the business was made after the subsequent losses, the company caused
2. J. S. Penny
The American retail chain JCPenney was also included in the bankruptcy list, which found itself face to face with debt obligations of the order of USD4.2 billion. The fall of this well-known company into the debt abyss lasted 9 years. The last straw in the aggravation of the company’s problems is the spread of the COVID-19 epidemic around the world. And as a sad result, Bali has been locked down the last 850 trading enterprises.
3. J. Crew
Manhattan Bergdorf Goodman. With the onset of the coronavirus epidemic, the company immediately stopped all the traffic and closed all its retail stores.
This giant, a world-class operator, operating in the satellite market, officially declared itself bankrupt on May 14. The owners of the company, according to their statements, were financed in the amount of USD1 billion. This investment will provide the necessary liquidity in the course of further restructuring so that the company can continue its activities.
Internet startup OneWeb, previously funded by the financial structure SoftBank, sent 74 satellites into space. But on March 27 he was forced to declare bankruptcy. This news came as a surprise to many, as SoftBank was ready to continue funding as a co-owner of this company.
7. Pioneer Energy
On March 2, at the headquarters in San Antonio, the owners of the oilfield services company Pioneer Energy, USA, decided to declare bankruptcy with the subsequent filing of the relevant application.
8. Diamond offshore drilling
The coronavirus epidemic has caused a drop in oil prices. Oil company Diamond Offshore, in the end, could not withstand the financial strain on the business. Its debt before the epidemic amounted to billions of US dollars. After she failed to pay dividends, the management had no choice but to officially declare bankruptcy.
The largest continental carrier Flybe, UK, canceled all flight plans on March 5 due to bankruptcy. But, as experts predict, many other air carriers are waiting for bankruptcy.
10. Virgin Australia
Billionaire Richard Branson, a founder of Australia’s largest airline Virgin Australia, filed for bankruptcy on April 21. The reason was the refusal of the Australian government to provide financial assistance at the request of the owners of the company.