#COVID19 cost for global economy could run into trillions of US Dollars


(Posted 18th March 2020)

With cases of COVID19 around the world now climbing towards the 200.000 mark and deaths reaching close to 8.000 – both figures are expected to rise substantially in coming days – are more and more governments now giving lockdown directives.
Once under lockdown, as it has now happened too in my birth town of Bruchsal/Germany, are people only allowed to leave their residences to either buy food or medication, in some cases even requiring permission to do so from local authorities.
Exceptions for going to work are still being made for public health workers, public transport personnel, those working in supermarkets, pharmacies, bakeries and butcheries – and some equally quintessential professions – but beyond that will production lines now stand still, all other shops be closed and life as we knew it come to an abrupt end.

IATA’s worst case scenario talks of up to 200 billion US Dollars in related costs for airlines, once the outbreak has been contained and ended.
No such estimates are yet available from the global hotel association and the global restaurant association, leave alone for other sectors of the economy but are thought to be much much higher.

In Germany is Volkswagen halting production – initially limited to just a few weeks – but given the rise of #COVID19 cases in Germany to nearly 10.000 may this very well take a lot longer.

Airbus on several assembly sites in Europe is halting production, as the last thing on the mind of airlines right now is taking delivery of new planes which would go straight into the parking lot – where less and less space is now available given the collapse of demand for travel.

The EU has decreed a month long halt on travel to the EU – with the exception of EU citizens returning home – the US has already last week put a similar measure into place and countries not aligned to such major blocks have individually started too to invoke travel bans for citizens of countries which turned into hotspots for COVID19.

Stock markets around the world have shed hundreds of billions of US Dollars in value already, and despite key central banks lowering interest rates to literally zero percent, is no end in sight for the bear market at this stage.

Discussions about the global financial aftermath of COVID19 are only just starting but even early indications are that the cost for the world economy will be in the multi trillion US Dollar range.

Those living in countries with a social safety net – and I am not even raising the prospect of governments sooner or later running out of money to pay for unemployment benefits, especially as their tax income will reduce to a trickle – have the relative assurance of still being able to pay for some of their expenses like rent, mortgages, loan repayments, food and similarly essential living costs. However, for people in self employment or who live in countries where – once the job is gone any income goes with it – are the prospects stark.

Governments will be asked to step in and step up, but those with already limited resources will find it difficult to meet the needs of their people – and a rise in crime rate might well go along with the rise in numbers of infections, casualties and a looming global lockdown.

There is no precedent from which lessons could be drawn at this stage and the general expectations are that this will get a lot worse first before it gets better again, in a few weeks, months or next year. Governments around the world are now fighting two battles, the one everyone is talking about right now – #COVID19 – and the one which is now only unfolding and for which battle plans are still to be drawn up – the fight to preserve their economies.

If those go spiralling out of control, so will the social fabric get brittle and social unrest follow, not a scenario any government will fancy as two front wars are hard to fight and win.

Once both battles are won – eventually they will – must governments have the prospect of their tax base returning into pay mode, or else bankruptcies will extend from the private to the public sector, again a recipe for social upheavals.

Is there hope? Absolutely there is … despite the aggressive nature of the virus has China demonstrated that drastic if not outright brutal measures do help to contain the spread of the disease and if the rest of the world can gather the courage to do what needs to be done, we can be sure that we can emerge out of the scourge – dented, damaged, beaten up but still moving.

After that should the recovery of the global economy offer new opportunities, open up travel again and perhaps will see governments impose less taxes, fees, regulations and restrictions on private enterprise to allow trade, manufacturing, aviation and tourism to start over again.

And, let me add this, as and when, keep the principles of going green and staying green in mind because climate change could otherwise be even more damaging than COVID19 when the floodgates of global warming break.

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