About the coronavirus: the winners, losers, and lessons learned

  • Home
  • Global
  • About the coronavirus: the winners, losers, and lessons learned

What is the economic impact of the virus?

Amid the growing number of confirmed cases of coronavirus (COVID-19) inside and outside of China (101 countries at the time of this article), the World Health Organisation’s (WHO) risk assessment of the disease is globally categorised as ‘Very High’ in its 48th Situation Report.  From the temporary closure of schools, factories and cancellation of events all over the world, the virus has affected several different spheres of life, beyond the health of thousands of people and the policy approach of nations. A number of industries continue to be impacted by the real and even perceived risks of COVID-19. With consumers’ reduced travel as a result of authorities’ restrictions or self-imposed quarantines, shopping and eating out has largely decreased in several areas around the world. The impact has scaled to companies including tourism, entertainment, and service, which now report negative short and long term impacts on their revenue growth.

Should we expect a second 2008 global financial crisis?

China represents a crucial element to the economy of most countries. Currently positioned as the second trading partner for the European Union (EU), just behind the United States, the EU is also China’s biggest trading partner. Therefore, when it comes to the global economy the impacts of COVID-19 have already emerged. Financial analysts have forecasted that the virus’ impact could be as severe as the one recorded in the 2008 financial crisis. For example, the recent fall of the S&P 500  has been its worst since 2008. Although the G7 have pledged to work together to counter the effects of the virus, it is inevitable that some companies could record zero earnings in 2020. A recent stress test conducted by the Central Bank of China, showed that 17 of 30 local banks would fail to meet their capital adequacy ratio if growth slowed to 4.15 percent.

Coronavirus has also tested the resilience of the Chinese banking sector as highlighted by the ex-president of the Bank of China Lihui Li in a recent interview where he addresses the importance of digital currency’s cost-effectiveness. This proved especially true when the government quarantined some old paper notes and distributed 600 billion yuan ($85.9 billion) in new money in Huobei, to prevent the spread of the virus.

Despite China’s efforts to control the spread of the infection and attempts to bring operations of factories and shut down businesses as quickly as possible, there remains concern about the global economic impact of COVID-19 virus.

A threat for some, opportunities for others?

Without disregarding the intrinsic risks and even subjacent intentions, the coronavirus outbreak has resulted in creating business opportunities and not surprisingly, innovation, across industries. The pharmaceutical industry is expected to benefit, especially for companies engaged in vaccine and drug development such as Johnson & Johnson and Novavax. The strengthening of public-private partnerships has also been seen. The Chinese government recently launched in the eastern city of Hangzhou, with the help of Ant Financial (a sister company of the e-commerce giant Alibaba), an application that dictates when a person can go out freely, or isolate for a week or a month.  An accelerated diversification of use cases for existing products by entrepreneurial companies through innovation and adoption of technology has also emerged. New business models have been observed in among others the health, remote office and education sectors. AliBaba’s DingTalk and Tencent’s WeChat Work have tapped into the work-from-home practice and added tools to host online classes for student and employees effecting remote working rule. Although faced with system crashes as a result of the surges, the companies have benefited from the increased demand occasioned by the disease.

How can financial service players maintain financial health in their immediate environment despite COVID-19’s consequences?

  • Where hard cash is perceived as a COVID-19 vector, financial service players could use this opportunity to strengthen and maintain superior user experience in the digital and alternative banking channels in preparation of a higher than typical use of e-channels.
  • Financial service providers could heighten data security measures especially in locations/cities where quarantines have been effected to mitigate against data protection risks that may result from the increased use of e-commerce for trade, consumption, and even entertainment purposes.
  • Financial service providers could also develop risk profiles for customers and review financial products to de-risk customer segments that operate businesses whose supply chains are in affected areas such as travel, automotive, manufacturing or tourism and/or have significant engagement with China suppliers to mitigate the impact from increasing NPLs
  • To protect local economies from financial instability or even recession, Central Banks could heighten the monitoring and supervision of regulated institutions to identify potential liquidity problems in the financial sector as a result of COVID-19. The use of appropriate policy tools is also envisaged to mitigate the potential economic fallout from the coronavirus outbreak.

Going forward

While the infection and mortality rate of the COVID-19 is a fraction of similar viruses, the shortage of masks, hand sanitizer and even food supplies experienced in many places around the world, is a testament of the vulnerability we as humans felt confronting the issue.  On the other hand, one of the news that has been a breath of fresh air among the convolution, is the positive impact the crisis has posed to the environment, with China reportedly reducing its  greenhouse emissions by a quarter. What is worrisome, is that in less than three months a health crisis cut emissions faster than in years of climate negotiations. And even of further concern is the fact that China has not formally pledged its intentions to cut emissions anytime soon.

The wake-up call we have received from the COVID-19 is that the global obsession to boost consumption to expand GDP, is no longer a sustainable indicator of growth that would allow the natural equilibrium of our planetary system. As Kate Raworth explains, today’s challenge is to meet the needs of everyone within the needs of our planet, ensuring all basic human rights (nourishment, education, work, expression, etc.) are met, without exercising extreme pressure on Earth’s life-supporting system, on which we fundamentally depend. Coronavirus reminded us of the interconnection between consumption, global biogeophysical cycles (i.e. CO2), health and security and the paramount difficulty to harmonize them.  It has further highlighted the collective responsibility we have for the environmental depletion caused by the supply chains we have created to “satisfy our needs” (i.e. China’s factories sourcing consumers in the West).  And while it is naïve to believe that individual actions will generate a measurable difference maintaining the planetary boundaries, collective action will. Beyond what governments do or don’t (in their largely fruitless climate negotiations), it is crucial that we all assume our accountability. Being aware of the repercussion of our actions to the planet, spreading the word in our communities and setting the example for others to replicate, is a starting point. Only then, we could eventually evolve into a conscious society and reestablish the healthy environmental levels of our planet


By, Joyce Murithi & Diana Chacon

Add your first comment to this post

Offering Sustainable Solutions that Positively Impact Livelihoods..

We provide advisory services to institutions working in the financial sector for and with the mass client segment.