Stocks are plunging, vacations are being canceled, and that’s just the beginning.
The novel coronavirus can be fatal to some people, but it’s also costing livelihoods. As the death toll rises around the world and the virus continues to spread throughout the United States, it could cost the global economy trillions in lost income, stock-market drops, tourism dollars, and more.
You probably wonder, how much money will it cost us? Early estimates from Bloomberg put it at $2.7 trillion, however, that was before coronavirus was declared a pandemic, the United States started canceling everything and all of Italy went on lockdown. This crisis will surely have repercussions in seemingly unrelated ways, including the major way it’s already affecting construction.
Here’s what this novel coronavirus is already doing to us financially, and what has the potential to do as the virus continues to spread.
The Chinese economy is virtually paralyzed
This will have a deep and profound effect on the global economy, says Tenpao Lee, PhD, a professor of economics at Niagara University.
“With our global economy, and the fact that China makes up about 16 percent of that, the economic ripple effects will be felt around the world,” Lee explains.
“The global supply network has been broken, and a significant portion of the global economy is halting.” Lee believes that a global recession—affecting developed and developing countries—is inevitable in the first two quarters of 2020.
Stocks are plummeting
“Global equity markets lost trillions in value during the week of February 24,” says Andrew Schrage, CEO, and co-founder of Money Crashers.
“Much of that value will return as the initial panic subsides and central banks take emergency action to assuage investors’ fears, but that’s not much comfort for weak-kneed investors gaping at their shrunken 401ks,” he says.
As CNN Business explains: “If those markets shut down like they did in 2008, banks would stop lending to each other and cut off capital provided to Corporate America. In other words, a health crisis would turn into a credit one.”
Airlines and hotels are suffering
“The travel and logistics sectors have been the hardest hit,” Schrage says. Especially airlines and transportation companies are the most affected, they have lost many billions in market value since the beginning of the year.
“The shock is worse than anything that’s happened since 9/11,” Schrage says. “Depending on the extent and duration of the pandemic, the long-term impact could wind up being worse than 9/11.”
Early estimates put the cost to the U.S. travel and tourism industry at $24 billion and the cost to airlines at $113 billion. Globally, some industry experts estimated around $820 billion in losses.
People will lose their jobs
When businesses don’t make money, that means there isn’t enough capital for paying employees. As a result, there will be layoffs. Small businesses will be the most affected of the effects of people staying home, away from crowds and away from businesses, forcing some businesses to be closed for good.
As the Independent writes, “Coronavirus’s economic danger is exponentially greater than its health risks to the public. If the virus does directly affect your life, it is most likely to be through stopping you from going to work, forcing your employer to make you redundant, or bankrupting your business.”
The gig economy will also create problems for many workers, as they won’t have a chance to get hired during these hard times, and therefore, they won’t be getting paychecks. According to Deutsche Bank, 15 million workers, including independent contractors, on-call workers, and temp-help agency workers in a wide range of industries, are at particular risk.
Sickness may lead to personal bankruptcies
Many people living paycheck to paycheck in this country, so things are already dangerous for them. Moreover, add potential layoffs, child-care issues, and expensive medical bills, and it’s a recipe for disaster.
According to a recent Healthcare.com and YouGov poll, “nearly half of insured Americans worry about being able to afford the costs of treatment if they come down with coronavirus. And that’s among insured adults. While the exact costs still aren’t clear, patients have received bills of more than $3,000 just for the tests. And being treated at an out-of-network facility—say, if intensive care is needed or your in-network hospital is at capacity—could run patients in the tens of thousands of dollars. ”
Sports are benched
It all started with March Madness and quickly spiraled into the NBA, the NHL, the MLB, and U.S. and European soccer. All of your favorite sporting events have either been canceled or suspended for or an indefinite period.
According to Fox Business, the NCAA raked in an estimated $933 million during 2019’s March Madness when factoring in media rights, ticket sales, and sponsorships. And that’s just for one college-sports championship.
Inflation
Since many production factories are now closed, the total supply curve will shift to the left with higher prices and lower quantities, Lee says.
“On aggregate demand, consumers staying home and spending less money to fuel the economy means it will also shift to the left with lower prices and diminished quantities of items sold, which also points to a possible recession,” he explains.
“Put aggregate demand and aggregate supply together, and we are most certainly looking at a recession.”
Interest rates are lower
In the strive to make consumers and businesses feel confident about the future, the Federal Reserve lowered interest rates.
“The full emergency 50 basis points reduction is the first since the financial crisis, a sign of how serious central bankers regard the downside risks to the economy,” says Mark Hamrick, a senior economic analyst at Bankrate.com.
“At issue is how much this inoculation can protect the economy and support the financial markets from a public health crisis and supply constraints radiating out from China.”
“But now that the benchmark federal funds rate target is 1 to 1 ¼ percent, it must be noted that the Fed’s most reliable ammunition—their lower rates—are dwindling,” Hamrick says.
Payments are late
Many large and small businesses have to wait for net payment terms before getting paid, says Steven Lee, cofounder of invoice finance marketplace Crowdz.
“With these types of global incidents, the delay in revenue further pushes out when a company gets paid,” he explains.
“Due to the loss of revenue from companies, factory shutdowns or stocks taking a hit, and fear of global catastrophes like coronavirus have a huge impact on business cash flows.”
