WHAT INTERNATIONAL TRADE COMPANIES NEED TO KNOW ABOUT THE COVID-19 PANDEMIC
The long-term consequences of the global pandemic of the new Covid-19 coronavirus remain to be seen. However, now is the time to review the more accurate data from the economies and begin to analyze scenarios on the magnitude of the impact on the world of international trade.
Today, it is undeniable that the new coronavirus will have a detrimental effect on the world economy. Especially since Covid-19 acts on a double economic axis. On the one hand, it affects industrial production and supply chains, while on the other hand, it also affects demand because confining people to their homes is the greatest preventive measure.
Regardless of the industry, companies are obliged to estimate and analyze the economic damage in their sector and then move on to a phase of creating internal scenarios that can guide their actions over the next few weeks.
The fall of China
When the first cases of severe pneumonia began to appear in the Chinese city of Wuhan during December last year, no one could foresee that the disease would spread across the globe. Much less that it would later become the main threat of global recession during this year.
The economic results of January and February in China gave an idea of the extent of the damage. Industrial production fell by 13.5% compared to last year, something not seen since January 1990. While retail sales fell by 20.5% year-on-year, to become a record low.
Data from China’s National Bureau of Statistics reveal the economic impact of the fight against this new coronavirus. Only now, in the second week of March, companies dedicated to the production of basic goods and services in Wuhan, such as medicines and food, were able to restart their operations.
This means that only two months after strict measures of social confinement and monitoring of infected patients is when China was able to lift the special measures and reactivate its productive cycle.
The picture is not at all encouraging considering that the other countries at the top with the highest number of cases, such as Italy or Spain, arrived at these quarantine measures much later.
Two key scenarios
The McKinsey & Company firm developed two baseline scenarios to guide internal business analyses, regardless of industry sector, workforce size or subsidiaries.
An initial optimistic projection states that new infections will remain in Europe, the United States and Latin America until mid-April thanks to the operation of large-scale quarantines. This would restore confidence in the health authorities so that by the end of the second quarter there will be a return to some economic normality in both production and consumption.
The third quarter would then be the time for economic stabilization and it would be until the end of the year when the larger economies would enter into a real economic recovery.
The second most pessimistic projection is that the peak of Covid-19 infections will extend into May. This would also lead to other regions such as Africa, Oceania and other parts of Asia to a massive epidemic. This would force even China to resume some more severe measures of social confinement, to prevent new infections from occurring.
This second scenario forecasts that the fiscal injection measures taken by some countries may not help to stop the spiral of economic decline. This would lead to a number of companies closing down and, consequently, generate a sharp increase in unemployment.
In this more difficult scenario, demand would end the year in a sharp fall and the economic impact would be severe, even more so than during the economic crisis of 2008 and 2009.
In fact, the pessimistic projection marks that the recovery of the global economy would begin only in the second quarter of 2021.
It is clear that both scenarios propose that companies, both exporters and importers, will face great challenges to stay afloat during this year. Those that can increase their cash flow and decrease their defaults will be better prepared to surf the current wave and at Credit Report we can provide them with the customized and human advice they demand at this time.