Business
Global economy reels under COVID-19 attack
By ADEBAYO OBAJEMU (with agencies’ report)
The deadly disease, Coronavirus, which came out of Wuhan in China in December last year has become a global pandemic according to the World Health Organisation, WHO. The claim to global notoriety of the virus came by stealth, and partly by apathy, as governments across the globe initially thought it was China’s problem, and President’s Jinping’s headache, making the global community slow in reaction.
According to agencies’ report Coronavirus is the most deadly disease that has had the most global impact and disruption since the Black Death of the 14th century which also incidentally, according to accounts by experts, originated in China. Black Death spread rapidly in Europe and the Near East between 1346 and1353 at least in its first wave.
It was also known as the Pestilence, Great Bubonic Plague, the Great Plague or the Plague, or less commonly the Great Mortality or Black Plague. It was one of the most devastating pandemics in human history, resulting in the deaths of an estimated 75 to 200 million people in Eurasia, peaking in Europe from 1347 to 1351.
The Black Death is widely believed to be the first major European outbreak of the plague and the second plague pandemic. The plague created several religious, social and economic upheavals, with profound effects on the course of European history.
The current pandemic ravaging the globe has affected the world economies as financial market across the globe is declining to an all-time low. Oil prices have been plummeting and last Thursday it fell to an 18- year low as travels and social lockdowns hit demand creating globally business disruptions. Stimulus plans by the United States of America and some other countries have so far failed to stem the decline.
As at last week, 3,237 have so far died of the virus in China, 2,503 in Italy, 1,135 in Iran, 588 in Spain and 266 in France. At least more than half of the African countries have confirmed the virus that has spread to all part of the globe.
Already China factory output has posted sharpest plunge in three decades between January-February. More disturbing is the fact that unprecedented Federal Reserve move has so far failed to calm markets. U.S. share trading halted; market falls 15% on Thursday. Spain, France and nearly most countries have followed Italy in imposing severe restrictions on movement. This has resulted in losses in billions to the aviation sector.
Already, UNCTAD has issued a dire warning to the effect that the pandemic is going to cost the world economy about $1 trillion. Cryptocurrencies have also been hit as they plunged in value.
Most experts around the world have warned that ‘Over-reacting is better than non-reacting’, they have also advised against gatherings of 50 or more –
OECD on its own has warned that the virus presents the biggest danger to the global economy since the 2008 financial crisis.
A poll of economists by the London School of Economics found 51% believed the world faces a major recession, even if COVID-19 kills no more people than seasonal flu. Only 5% said they did not think it would. There are now some 200,000 confirmed cases of COVID-19 globally.
China, the epicentre of the virus is the world’s second-largest economy and leading trading nation, so any economic fallout from COVID-19 also threatens global growth. Economists polled on March 3-5 said the outbreak likely halved China’s economic growth in the current quarter compared with the previous three months.
The poll of more than 40 economists, based both in and outside mainland China, forecast growth to fall to a median of 3.5% this quarter from 6.0% in the fourth quarter of 2019, a full percentage point lower than predicted in a Feb. 14 poll.
“If you’re in a city which has been closed down or put (under) virtual house arrest, you’re not going to go out to the streets, you can’t go to the cinema, the restaurants…with all those sorts of things, economic activity will be substantially negatively affected,” said Rob Carnell, head of Asia-Pacific research at ING.
The Chinese economy is likely to be hit further by reduced global demand for its products due to the effect of the outbreak on economies around the world. Data released on 16 March showed China’s factory production plunged at the sharpest pace in three decades in the first two months of the year – something which could mean an even greater economic slowdown than predicted.
To combat the economic fallout, the U.S. Federal Reserve on 15 March cut its key interest rate to near zero. But the move, coordinated with central banks in Japan, Australia and New Zealand in a joint-effort not seen since the 2008 financial crisis, failed to shore up global investor sentiment, with oil prices dipping below $30 a barrel on 16 March, and a 9% slump in share values when Wall Street opened.
China is the world’s biggest oil importer. With Coronavirus hitting manufacturing and travel, the International Energy Agency (IEA) predicted the first drop in global oil demand in a decade.
“Covid-19 (Coronavirus) has spread beyond China and our 2020 base case global oil demand forecast is cut by 1.1 mb/d. For the first time since 2009, demand is expected to fall year-on-year, by 90 kb/d,” the IEA said in its monthly report for March 2020.
On 9 March, oil prices lost as much as a third of their value- the biggest daily rout since the 1991 Gulf War, as Saudi Arabia and Russia signalled they would hike output in a market already awash with crude after their three-year supply pact collapsed.
“A WHO declaration of global emergency and U.S.-EU traffic ban is dampening the global energy demand outlook, in conjunction with an intensified price war between Saudi and Russia,” Margaret Yang, market analyst at CMC Markets in Singapore, told Reuters.
“Bears are dominating the oil market and there might be more downside before a bottom can be reached.”
Anyone hoping crypto-currencies might prove a haven was disappointed. Bitcoin lost more than 30% of its value in the five days to 12 March. On 5 March – before the U.S. travel ban was announced – the International Air Transport Association (IATA) predicted the COVID-19 outbreak could cost airlines $113 billion in lost revenue as fewer people take flights.
On March 16, British Airways said it would cut flying capacity by at least 75% in April and May. Other UK airlines, including Virgin Atlantic and easyJet, also announced drastic cuts.
The shortage of products and parts from China is affecting companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home to help reduce the spread of the virus.
Apple’s manufacturing partner in China, Foxconn, is facing a production delay. Some carmakers including Nissan and Hyundai temporarily closed factories outside China because they couldn’t get parts. The pharmaceutical industry is also bracing for disruption to global production.
Many trade shows, cultural and sporting events across the world have been cancelled or postponed. The travel and tourism industries were hit early on by economic disruption from the outbreak.
Besides the impact on airlines, the UN’s International Civil Aviation Organization (ICAO) forecasts that Japan could lose $1.29 billion of tourism revenue in the first quarter due to the drop in Chinese travellers, while Thailand could lose $1.15 billion.
In response to Coronavirus, Nigeria has cut oil benchmark to $30, slashed capital budget. Mr.
Ambrose Omordion, chief research officer at Investsa told BusinessHallmark that ” Nigeria and many other African countries face bleak future and uncertainty because of the impact of the virus”.
In the Nigerian Stock Exchange, Investors have lost fortune, as market cap now hovering around N12 trillion. Of which, early in the year the equities capitalisation has crossed N15 trillion due to recent listing of BUA Cement.
He said already anxiety is mounting over Nigeria’s economy as oil prices tumble amid OPEC, Russia failed talks, saying the country faces revenue crisis as oil price crashes below Nigeria’s budget benchmark. The government last Wednesday made some significant alterations to its 2020 budget as measures to contain the effect of the outbreak of Coronavirus on the nation’s economy.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, said the government will implement a 50 per cent cut in revenue from privatization proceeds. It also announced a cut in crude oil benchmark price, down to $30, while crude oil production remains at 2.18m barrels per day as earlier contained in the budget estimates.
Speaking to journalists after the Federal Executive Council meeting presided over by President Muhammadu Buhari in Abuja late Wednesday, Mrs Ahmed said the Federal Executive Council approved reductions in the capital budget by 20 per cent, and 25 per cent cut in recurrent expenditures.
She said: “I’m pleased to report that just yesterday His Excellency has approved several measures for us to implement. These measures include the introduction of PMS price modulation mechanism. The reason being that at the low crude oil price of $30 to $32 per barrel, there’s no under-recovery. The under-recovery is right now zero we are at an over-recovery stage, meaning the PMS price will be reduced to reflect the reduced price of the crude oil in the international market.”
The state oil firm, NNPC, has since announced a reduction in petrol price from N145 per litre to N120.
“Mr President also approved that we should cut down on the size of the federally funded upstream projects of the petroleum sector. The reason being we want to be able to get more revenue by less reduction from NNPC. The reduction of the crude oil price from the $57 per barrel that we budgeted to $30 means that we are going to get so much less revenue, almost 45% less than we planned and because of that we have to amend a lot of projections in the budget as well as in EMTEF to reflect our current realities,” the minister said.
Dr Olufemi Omoyele of Redeemer University warned that “global recession looms and Nigeria and African countries with weak structures will be severely affected because of the virus.
With reports from Reuters, CNN and the World Economic Forum.
