The Many Economic Effects Of The Coronavirus

The global spread of the coronavirus in 2020 prompted a record plunge in the U.S. stock market, and the impact has been spread unevenly across sectors and geographies. 

Consumer-facing services such as leisure, retail, tourism, and car production have been very hard-hit, according to Capital Economics. But others, including IT and financial services, food, and pharmaceutical production have fared much better during the crisis.

Coronavirus Impact On Europe, US, Asia: The data shows there is a significant variation in how the virus has affected economic activity.

For example, southern Europe was hit very hard, with the U.S. suffering somewhat less and some Asian economies relatively unscathed, Jennifer McKeown, head of the global economics service Capital Economics, said in a note.

In the first quarter of 2020, China was easily the most affected of the major economies, followed by France, Italy, and Spain, she said. 

China is experiencing a rebound, and South Korea and Japan are suffering relatively modest declines, McKeown said. 

Italy, France and India seem to be enduring plunges in activity of 20% or more in the second quarter, the analyst said. 

US, Japan, Germany Offer Biggest Direct Stimulus: Another factor that could explain some of the variation in the economic effects of the virus is the policy response, McKeown said. 

This factor will be a crucial determinant of the pace of recovery in the months ahead, she said. For example, the U.S.Federal Reserve has offered generous business loans intended to keep the economy functioning, the analyst said. 

The U.S, Japan, and Germany have all offered the biggest direct fiscal stimulus packages among the major economies. In contrast, India, Russia, and Brazil have been relatively slow to offer fiscal support, according to Capital Economics. 

Japan Contains The Virus: Japan appears to have contained the virus relatively well, necessitating only a short lockdown and resulting in more modest effects on activity, McKeown said. 

“Industrial production, [in Japan] for example, fell by 8.4% m/m in April compared to a 17.9% slump in Germany. Various other Asian economies have exhibited similar resilience, including Korea and Taiwan.”  

India, which has seen a surge in cases and a stringent lockdown, looks set to experience a slump in activity of a similar magnitude to that of Europe, the analyst said. 

A number of economies that are reliant on tourism and leisure, including Turkey, Egypt, and much of Southern Europe, are likely to experience sustained weakness, McKeown said. 

Economies that have been unable to offer adequate or appropriate policy stimulus will also be slower to return to business as usual, according to Capital Economics. 

Beware Of Renewed Outbreaks: The likelihood of renewed outbreaks is very difficult to gauge right now, but it will limit the pace of recovery in major advanced economies and some emerging markets, McKeown said.

More modest future waves of the virus will result in containment measures being reinstated to some extent, she said.