How coronavirus affects the economy: 6 negative factors

UNITED STATES (OBSERVATORY NEWS) — Coronavirus in China and other countries has become the main news item in recent weeks.

It affects almost all spheres of life – from mobility to the supply of necessary goods. Undoubtedly, the situation around the coronavirus has an impact on various sectors of the economy.

Below we will talk about the main negative consequences of the coronavirus epidemic for the global economy.

1. Consumption

The population of China reaches 1.4 billion, China is the largest market in the world. However, because of the coronavirus, many stores were closed in the country.

In addition, due to the fact that factories temporarily stopped working, the possibility of spending money decreased for some of the population due to the suspension of work.

All this could not but affect the profits of companies that began to sell less.

However, not only companies operating in China will suffer. The fact is that China is a significant consumer in the tourism market. Numerous tourists from this country, visiting other countries, spend a lot of money.

For example, in 2018, Chinese tourists spent $ 34.6 billion in the United States, $ 17 billion for expenses directly related to travel.

Now that China has introduced restrictions on the movement of citizens, the tourism industry in many countries will suffer significant losses, as the number of tourists and, consequently, spending will decrease.

According to Tourism Economics, the impact of coronavirus on the tourism industry will be worse than the effects of SARS in 2003.

2. Production

Numerous factories in China have been shut down as the government tries to prevent the spread of coronavirus. The suspension of the factories led to a shortage of goods for delivery both in China and in other countries.

This will negatively affect not only the profits of Chinese companies, but also the financial position of international companies with their own production facilities in China.

Against this background, the demand for oil and electricity is declining.

3. Supply chain disruptions

Companies that import goods and parts from China should look for new suppliers.

In some cases, there is not enough developed infrastructure to find a replacement for Chinese goods in a sufficiently short period of time.

Even if there are other suppliers, negotiations, contracting and deliveries will take up enough time and will cost additional costs.

4. Restrictions on the movement of goods and people

World business depends on the movement of goods and people. Travel to and from China has declined significantly in recent weeks.

Moreover, many countries have temporarily suspended flights with both China and neighboring countries, in particular, with South Korea and Japan.

Such restrictions, as mentioned above, negatively affect tourism and reduce consumption.

However, in addition to this, airlines and other transport companies suffer, as the volume of traffic is reduced, and therefore, the income of companies is also reduced.

5. Uncertainty

Against the background of numerous reports of the coronavirus epidemic, many analytical companies warn that in the current year, American companies have a chance not to make a profit.

So, in a recent report, Goldman Sachs made just such an assumption regarding the profit of American companies in 2020 in connection with the epidemic of coronavirus.

Shares are declining on exchanges around the world.

In particular, according to forecasts by Goldman Sachs analysts, S&P 500 earnings this year may fall by 13%.

6. Falling value of assets

The situation around the coronavirus epidemic could not but affect the stock markets around the world. Shares of companies are declining.

So, the European STOXX 600 index fell by 2.5%. The companies from Italy, which became the center of distribution of coronavirus in Europe, were especially noticeable.

In the USA, the shares of Microsoft, one of the most expensive companies not only in the country but also in the world, fell 3%.


This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.

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