The coronavirus, having now infected more than 110,000 people worldwide, is wreaking havoc on the global economy. So much so that a recession is beginning to look like a real possibility. Monday was the worst day for Wall Street since the 2008 financial crisis.
“It’s certainly one for the history books,” Matthew Keator, managing partner in the Keator Group, told Reuters. “The markets are now pricing in a high probability of recession.”
Oil futures are now at their lowest since the first Gulf War in 1991. If the trend continues, a recession may be inevitable.
“There’s a lot of fear in the market and if the price of oil continues to move lower it’s an indication that a global recession is not far away,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
In Europe, airlines are hurting. Norwegian Air’s value has declined 70 percent, while Flybe—a British airline—has gone out of business completely. Perversely, the crisis will probably end up benefiting the larger airlines seeking to push smaller competitors out of the industry.
“This virus will expedite the thesis of consolidation, possibly to extreme levels,” said Citi analyst Mark Manduca.
While governments would intervene to ensure that the major airlines don’t fail, they’re unlikely to do the same for others. Indeed, Flybe collapsed after being refused a $129 million loan from the UK government.
Small businesses are suffering as well. In Australia, the government is expected to introduced a stimulus package to help businesses weather the coronavirus storm.
“As for an investment allowance, this is obviously under very serious consideration (and) this is something that the business community has asked for and if you look abroad some other countries have put in place fiscal responses which include support for business and investment,” Treasurer Josh Frydenberg told the Guardian.
“We want Australian businesses to get this support through this economic shock, but when we are over this economic shock we want the Australian economy to be stronger, we want to have greater productivity, and investment is a key part of that,” he added.
Such investment allowances are critical to sustain cash-flow, said a statement issued by a coalition of business groups that met in Canberra on Wednesday.
“Small business ‘lives and dies’ on cashflow. The failure of cashflow is the single biggest cause of small business closure and consequent loss of employment,” they explained. “Given the flow-on effects, assistance to small businesses impacted by Covid-19 must seek to underpin cashflow so that businesses continue to remain viable and retain staff in the face of any dramatic falls in revenue.”
The chain reaction is easy to envision. One industry impacts the others. As revenues fall, companies don’t have money to spend on marketing and advertising. This affects businesses specializing in those fields, like PPC agencies in Sydney. This in turn affects other industries, and general unemployment begins to go up.
The short term solution, as the group of businesses mentioned above sees it, is for the government to provide immediate tax breaks, cash grants and wage assistance. Tax cuts for individuals can also help, said Sarah Hunter of Oxford Economics, as that gives people money to inject back into the economy.
“I think though we could easily see a contraction in the economy, in economic activity, just based on the hit to services … the tourism channel of course and the business channel,” Hunter said. “As we go through March we’re going to see more and more of the supply chain issues coming through.”