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The Impact Of COVID-19 On The Stock Market and the World

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With the increasing Coronavirus cases around the world, there has been a significant impact of this pandemic over the business sector. Thus, stalling the economy and slowly moving the world towards a global recession.

According to The World Trade Organization (WTO), the global trade is set to fall in the year 2020 by between 13% and 32%. This fall is because there is a large amount of uncertainty. After all, the pandemic has ended up gripping the world with uncertainty.

WTO also predicts that the recession caused by this COVID-19 pandemic will prove to have more disastrous effects on trade than any other financial crisis previously did.


COVID-19 impact on the Stock Market


The COVID-19 epidemic has ended up taking a massive toll on the US economy. The stock markets all around the world have been in decline, and the US stock market has itself experienced its worst first quarter ever.

The COVID-19 pandemic has proved itself to be a crisis like no other, and the crisis is expected to fling global growth back. IMF has predicted that 170 countries will end up witnessing degrowth in their per capita income.

The pandemic is also going to cause increased stress in the financial market system and will also cause an increase in the federal deficit. For financial markets in emerging economies, the system is going to be even more difficult.

With the news that individual states are working on plans to reopen their economies, the stock indexes have ended up climbing. Many countries are currently working on plans to lift the stay at home orders and have decided on a go-slow approach.


The spread of COVID-19 has shaken up all the financial markets to its core and has ended up in widespread layoffs of employees around the world. There are millions of confirmed cases across the globe, and the death toll has risen to 127,594,000.

All the major stock indexes have been reacting adversely to the news, and this has ended up in losses for investors or at least a decline in profits.

The stock market is naturally influenced by many factors, and therefore to best understand the impact of COVID-19 on the stock market in its entirety, we need to take an in-depth look into its effects on different sectors around the world.


How is COVID-19 Affecting Trade in Different Sectors Over the World


Ever since the spread of the COVID-19 pandemic, an interim assessment conducted shows that the world GDP has fallen by 2.4 percent. The fall has happened from an already adverse state of 2.9 percent in the year 2019, and this downward trend is said to continue until the 3rd quarter of the year 2020.

The retail sector has seen the worst situation because of the pandemic as trade and commerce have been suspended, and the commodities are facing extreme shortages due to panic buying and hoarding done by the general public and various charity organizations.

There has been a significant downward spiral on the Chinese trade and commerce because of which those economies that have been heavily dependent on trade activities from China are seeing the worst aftermath. This strain is seen to be more severe in the G20 economies.

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Travel ban across several countries has proven to be a useful and practical measure in preventing the spread of COVID-19, but on the other hand, it cost the travel and tourism sector losses in terms of millions of dollars because of thousands of people canceling their flights.

If this pandemic situation carried on, then the Global Civil Aviation is most likely to face a loss of between 63 and 113 billion dollars, with some going bankrupt as well. With travel bans put in place, many small business owners who conducted their business based on trading will also find themselves in a tough situation.



COVID-19 is Most Likely to Reduce World Trade by a Third


As per the predictions by The World Trade Organization, it is said that the world trade is most likely to reduce by a third. The only way that any recovery can be seen is if countries come together and work towards it instead of working alone as all the fiscal policy and trade policy need to move in the same direction.

In 2020, almost all the regions are set to suffer in trade with exports from Asia and North America being the most affected. It is because of the restrictions placed on travel and transport and borders being closed for the businesses as well as for the public.

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Various reports by WTO officials have also stated that due to the shortage of medical supplies, the production needs to be done from safe spaces instead of factories or internationally and to be fully self-sufficient, diversification needs to be taken place so that countries can have supplies from different regions rather than a single player.


COVID-19 and Unemployment Due to Global Recession


Due to the global recession, there is a fear of almost 25 million layoffs, according to the International Labor Organization, if the current coronavirus situation prevails.

Because of this pandemic, the unemployment rates have been rising and are putting pressure on the government and central banks that either forces them to retain their employees and compensate them or let them off. And as unemployment will keep on rising, so will the recession and more strain on the policymakers will be added to curtail this situation and find a solution to the problem.

According to the latest reports by JP Morgan Chase % Co., the measure of unemployment is likely to rise by 2.7 percent towards the mid-year in the developed countries. The US is more likely to face about a 4.6 percent rise and Europe by 8.3 percent by the end of 2021.


The US is the most affected country with the COVID-19, and as per recent reports, it is no surprise to observe that the unemployment level rose for the first time in a decade bringing their payrolls down by seven times than what their economists had predicted and there is still more to come.

In Europe, it was reported that around one million Britons had registered themselves as unemployed within a span of two weeks, which was ten times the regular figure. Approximately 14 percent of people recorded themselves as unemployed in Spain and 12 percent in Austria, which was the highest ever since World War II.

With the crisis being at an all-time high, many layoffs and cost-cutting measures have been taken to ensure that further losses are not experienced and that most businesses are saved. However, due to this, production has stopped, and it eventually leads to a decline in the generation of foreign currency through exports and imports. Thus, increasing the current account deficit and decreasing the GDP of that particular economy. Thus, the effect of production in developing countries has been brought to a halt.  


COVID-19 and the Oil War


As we saw earlier that there has been an increasing rate of global recession and trade restrictions put in place, the COVID-19 pandemic has triggered a global crash in the oil sector as the prices have risen to an all-time high.

It started with the outbreak in China and slowly spread to counties all over the world. China is the biggest oil market in the world that provides this energy for over 1.4 billion people. The oil prices slump started when oil consumption fell as factories had to be shut down due to the rapid spread of the virus in China.

As the oil demand remained low, the Organization of the Petroleum Exporting Countries (OPEC) decided to make cuts in the year 2020 as well, but Saudi Arabia suggested removing 1.5 million barrels per day along with maintaining reductions from the global production.

This decision did not sit well with Russia because they were losing 0.5 billion barrels that put them at a disadvantage with no positive impact on them. With every failed negotiation, the oil price war started between Russia and Saudi Arabia. As per the International Monetary Fund (IMF), Russia’s economy can live with $25 a barrel for years as compared to the $91 per barrel of Saudi Arabia.

At present, the US is in between negotiation with Russia and members of the OPEC to discuss the outcome of the oil prices and consumption to be set among them, with the US being amongst the largest exporters of oil in the world.


COVID-19 and its Effect on China and US Trade


The trade war between the US and China is not new. However, once they made a truce, COVID-19 became responsible for damaging the economy of China very severely, with businesses being closed indefinitely and Chinese exports falling by 17.2 percent and suffering a trade deficit of 7.1 billion dollars. With its rapid spread, their truce also came to an end, with sixty workers being expelled at Chinese media outlets in the US.

There have also been many speculations regarding the uncertainty of US-based companies operating in China who were looking for trade policy relief but were unable to gain from it because of increasing US-China economic tensions.

The US has imposed tariffs on China that have undermined its response to the coronavirus outbreak. According to many specialists, the US is better off without these tariffs, but due to the increasing hostility between the two countries, it is only making matters worse.


With the US being at a disadvantage, they are not only losing the fight with COVID-19 due to depleted resources but also, they are losing out on the bidding game with China for medical tools and equipment and health care products against the rest of the world.

The US companies like General Motors are also seeking tariff reliefs so that they can import ventilator parts that are being produced by China that are facing up to 25 percent tariff.

At present, one can only say that the countries need to come together and work collectively, keeping other differences aside during these tough times.


Effect of Export Restrictions on COVID-19


The pandemic is not only affecting the trade of consumer goods but is also creating a shortage of medical supplies. Due to these restrictions, those countries who need the medical supplies urgently, are unable to get them, thus causing disruption. Because of this, world prices are most likely to be affected.

This restriction was placed in the hopes of offsetting the domestic shortages and the rising prices as the demand increased for COVID-19 products. However, global exports take a disastrous turn when these prices are increased even more than predicted.

In the short run, the prices for clinical masks are set to increase by 20.5% and protective equipment such as gloves and aprons by 1% to 2%.


These export restrictions could become a grave concern if governments try to impose further restrictions in the hopes of mitigating the prices and addressing domestic market shortages. However, what they don’t understand is that this action could have a multiplier effect on the rising costs and shortages, and as a result, it could further escalate the price increase.


Import Protection in Developing Countries


Due to the imposition of import protection policies, many countries are now taxing their health care systems. The way this is done is by imposing tariffs on imported medical products and equipment. Due to this, it increases the domestic price and decreases services.

According to the recent reports done by the Global Trade Alert, it is said that several developing countries are most adversely affected by COVID-19 have started to impose such import reforms. Most of them are done temporarily, but exporters are now reluctant to enter into new markets as they feel that they might be exploited this way.


If this policy is done right, i.e., by locking into-tariff reductions, it can prove to be the most effective trade policy that will address and take care of the COVID-19 pandemic crisis.


Trade Policy Cooperation


The vital medical supplies and equipment need to be freely traded so that it can reach the concerned medical staff and patients of COVID-19 directly from the producers. Both export restriction and import protection, collectively, are very inefficient as the number of coronavirus cases rises, trade protection policy will cost many lives. They need to preserve the open markets to get relief in this difficult time.

Extended shutdowns will harm the economy, which will end up adversely affecting the stock markets. However, in these testing times, we need to be patient and stay at home to be able to fight the virus.

Author of the article

Florian Fendt
An ambitious investor and trader, Florian founded BrokerCheck after studying economics at university. Since 2017 he shares his knowledge and passion for the financial markets on BrokerCheck.

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