Updated: 16th March 2020
COVID-19 Budget: Early Predictions
The spread of Covid-19 shows no sign of abating, with numbers affected continuing to grow on a daily basis. Global infection rates now top 100,000, with the death toll edging close to the 4,000 mark. What began as a problem isolated to China has now spread across the globe, with infection rates in Europe increasing by the day.
Stock markets are reacting to the turmoil. The FTSE has suffered considerable falls over recent days, with an 8.5% plunge on Monday representing the largest one-day fall since the last major financial crisis in 2008.
However, it is not just coronavirus that has stock markets feeling nervous. The emergence of an oil price war involving Saudi Arabia, Russia, and the US over the weekend has exacerbated issues, with a massive 30% drop in the price of oil; BP have lost 27% and Royal Dutch Shell are down 20%. Panic selling from those attempting to cover their losses in oil shares has contributed heavily to the losses being felt today.
An oil price war coupled with the coronavirus crisis, is a lethal combination for the world’s stock markets, and has further compounded already significant losses suffered over the last fortnight. With investor confidence at a decade low, there are real fears that Europe’s economy could be headed into recession.
Is self-isolation on the cards?
Italy, the worst affected country in Europe, took the decision over the weekend to quarantine 16 million of its residents, with schools, gyms, cinemas, and museums ordered to close in an attempt to halt the devastating spread of the virus. Whether similar containment measures could be implemented in the UK will largely depend on the rate of how the virus continues to spread over the coming days and weeks.
While this may be necessary for public health, compulsory self-isolation or other social-distancing strategies could have a disastrous impact on the country’s economy. Individuals’ spending power will be reduced if they are forced to stay at home, while many businesses could see their takings fall dramatically if customers are unable to socialise as normal - that is if they are able to open their doors at all. The self-employed, who are not entitled to sick pay, are likely to be hit particularly hard should they fall ill or be ordered to self-isolate at home.
Although the UK has so far been spared the infection rates being reported in Italy, with the economy increasingly a global one, countless businesses across the country have already been negatively affected through supply chain disruption with countless others braced for challenging times ahead.
Like the virus itself, the economic impact will be difficult to contain and will cut across many sectors affecting businesses both big and small.
Supply chain uncertainty
One of the main issues is that there is considerable uncertainty and an overarching sense of confusion which is preventing businesses from being able to plan ahead. No one knows for sure how long the crisis will last, nor whether we are currently experiencing the worst of it or whether more is yet to come.
With many factories in China closed since late January, supply chains have been decimated, leaving those companies relying on components and finished stock from these manufacturers having to use up items already held in stock with no guarantee when the next shipment of items will be ready.
Unfortunately, when it comes to supply chains getting back to pre-coronavirus levels, it is not as simple as factories restarting production. Supply chains could take several months to be sufficiently replenished meaning that even once the worst of the medical threat from the virus has passed, the economic hangover could last much longer.