COVID19: THE HARBINGER OF SOCIOECONOMIC DOWNFALL

 – Dr. Madhura Mandlik

As 2020 was dawning upon the horizon, chaos was steadily taking roots in the Wuhan province of China. A highly contagious virus was on the precipice of spreading from one country to the entire world. Countries have been scurrying on their feet to curb this menace, which has been clutching all domains of life within its suffocating grasp.

Wuhan being the first epicentre of the disease, was in a state of lockdown for almost 60 days, the borders were sealed off and all international and local travel was brought to a standstill in order to curb the spread of this virus. The once crowded streets were rendered empty as people stayed in their homes; some quarantined while some isolated.

China is a superpower of the east, harbouring a myriad of businesses, trade and commerce, as well as educational institutes. China is a major supplier of not only most manufactured products, but also raw materials used in many large and small scale industries alike. So, when the markets in China were hit, the whole world felt the repercussions.

Among the worst hit companies were Nike wherein the leading sports brand had to close 50% of its stores all over China. Nike’s stocks also plunged further when major sporting events all around the globe like the NBA, NHL, English Premier league were suspended; showing declining trends in its 50-day and 200-day moving averages. As most people in China stayed home majority of Nike’s income came from online retailing during the period of lockdown. Other companies hit due to the coronavirus were Yum China the fast food chain giant which encompasses the likes of KFC, Pizza Hut and Taco Bell and Carnival Corp. which owns the luxury cruise ship line.

In today’s day and age, the world has become a village and travel all around is affordable and easily accessible. Owing to this, the virus began to spread to Europe and Italy was the worst hit. WHO had labelled Italy the epicentre of this pandemic. Italy being a picturesque country with beautiful architecture and history is one of the major tourism hubs in Europe. A major part of their economy is thus laid on tourism which was one of the foremost sectors to be affected as the number of tourists decreased drastically. Restaurants, retail stores and tourist spots were shut down thus affecting the services sector. The number of deaths attributed to COVID19 in Italy have now surpassed those in China. Other countries to bear the brunt of this disease were Spain, UK and France.  The British Pound fell to its lowest value in comparison to the US Dollar thus highlighting the struggles the economy is facing. The Bank of America has predicted a 7.6% contraction in the economy of the 19 membered Eurozone. The Eurozone’s service sector activity index slumped from 48.7 in February 2020 to a record low of 39.5, while the manufacturing industries factory output decreased from 52.6 in February 2020 to 28.4.

This microscopic virus also burrowed its way into the superpower of the west and crippled the USA bringing many of the states to a standstill. Disneyland and Six flags shutdown their theme parks, and major concerts, sporting events were all cancelled. The Dow Jones Industrial average fell below 21,000 from its peak at 26,000. USA is resorting to draconian measures to impede the spread of this virus thus grinding human life to a halt. Many airlines have suffered losses, an example being United Airlines that has faced a major fall in their income of about $1.3 billion compared to last year. It is estimated that the worldwide airline industry would suffer from a decline of about 20% in passenger revenue. According to a survey, 3 out of 4 businesses face hurdles in their supply chain as majority depend on China which was forced to shut down ports. Apple which has a major corporate office as well as a production unit in China would lose approximately $67 billion due to decrease in sales of the iPhone.

Here, at home in India, as we are halfway through the second week of a pan country complete lockdown, trading and commerce has been suspended. Those who have the luxury of white collar jobs are working from home. But those not privileged enough like per wage workers are worried about their daily bread. The Indian economy is facing the brunt as the Sensex fell nearly 32% from 14,953 on 14 January to 28,288 on 19 March.  The Rupee is also facing a new low against the USD at 76.28. There exists an extreme volatility in the market today as many of the Nifty 50 companies are facing a new low. Stocks of companies like Eicher motors, Bajaj FinServ, Shree cement, Ultratech Cement, Maruti Suzuki, TCS and Hero MotoCorp have all faced the heat. Many of the automobile giants have shut their production factories including Maruti and Hero. Most of the above stated companies are blue-chip names but are still trading at multi-year lows.  India has sealed its international borders as well as interstate borders. Travelling is almost come down to zero thus furthermore affecting trade and commerce.  

In order to help the people and to dampen the economic crisis the World Bank and IFC have approved a sum of $ 14 billion in fast track financing to strengthen the world’s fight against this contagious microbe. The Government of India has also stepped up their battle against coronavirus and provided aid to those affected. The finance minister has announced a package of Rs 1.7 lakh crore as relief fund. India has already extended the deadline of the end of the financial year to July and has zero balance in bank accounts of many private sector banks. Banks like IDBI have suspended their loan instalments for the next three months. The health care and civic workers who are working at the frontline of our fight against this virus have been given a life insurance of Rs 50 lakhs.

In this time of crisis, the industry which is gaining attention is the health care and pharmaceuticals sector. They are using their technology to bolster our fight against this novel coronavirus. The shares of Moderna had skyrocketed when they announced that they have sent the first samples of their vaccine against this coronavirus to National Institute of Allergy and Infectious Diseases, NIAID for testing. Gilead Sciences also saw an increase in their market value when their phase 3 trial drug Remdesivir could be used to combat the virus. This crisis has also led the people into a spree of excess buying and hoarding. This has benefitted companies like the Clorox company which manufactures bleach and cleaning supplies. Lakeland Industries, which sells protective clothing like hazmat suits, saw shares increase about 50% year-to-date due to COVID-19 fears.

This novel coronavirus is bringing capitalism to its knees. 2020 is on a path to be a terrible economic crisis, some even comparing it to the crisis of 2008. However, at this point of time, today, in the midst of this uncertainty, a few things are crucial. It is imperative to stay at home, respect and obey the orders of quarantine and wear through this storm shoulder to shoulder, hand in hand, metaphorically. Every cloud does have a silver lining, all we have to do is look for it.