Will the world economy collapse because of Covid-19?

Will the world economy collapse because of Covid-19?

May 19, 2020

Should I enter or quit the stock market? The topic of "unemployment" is now increasingly discussed, will I really lose my job? Will an economic crisis really break out?

Affected by the pandemic, the year 2020 had a very unusual beginning, allowing us to witness many historical firsts: U.S. stocks saw four automatic trading halts within one month, while such halts, known as circuit breakers, had been used only once in previous decades; it is for the first time that the Olympic Games was postponed for the reason of pandemic; all 50 states have declared a "disaster" for the first time in US history.

The pandemic is inflicting high and rising human costs worldwide. Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus. However, these restriction measures not only curb the spread of the virus, but also have a severe impact on the economy and employment.

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As a shareholder, should I leave or continue to buy? I don't like my job, should I leave now or for some time? Will the global economy regress? Will there be social unrest?

This article uses real data to show the relevant facts for your reference: 1. Epidemic situation; 2. Unemployment; 3. Economic impact.


A. Epidemic situation


As we move into May, the epidemic situation still can not make us overly optimistic. Globally, the overall confirmed cases have exceeded 4 million, including more than 2 million still being treated, and over 300,000 have died of the disease; from the end of March till now, the daily new confirmed cases has fluctuated around 80,000, and the mortality rate and cure rate have also tended to be stable, about 20% and 80% respectively.

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The data are from WHO and the chart is made in WPS Office

The U.S., the country with the largest number of confirmed cases and deaths in the world, is facing a very grim situation. The overall confirmed cases have exceeded 1 million, and over 90,000 have died of the disease. It has accounted for a growing percentage of the global total confirmed cases.

Although the numbers of new cases and deaths continue to rise substantially, the death rate has begun to decline and level off, from a peak of 84% in mid-March to about 40% at present.

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The data are from WHO and the chart is made in WPS Office

Compared with countries with similar population base, Indonesia is in better shape. By the middle of May, Indonesia has seen nearly 18,000 confirmed cases, 1,000 deaths, and nearly 4,000 recoveries.

Nevertheless, the situation in Indonesia is still grave. In late March, the daily number of new cases in this country began to surpass three figures, and continued to rise thereafter. Coupled with the disruption to the global trade caused by the pandemic, medical supplies may not be distributed and delivered in a timely manner.

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The data are from WHO and the chart is made in WPS Office

B. Unemployment


With the escalation of the epidemic, "unemployment" , our top concern, has also become a hot topic. By comparing global stock markets, we can also see that the stock markets in different countries have different performances in different periods of time. In this chapter, the two key words, "stock market" and "unemployment", are used to develop an overview of the trending searches topics in the past year (100 is the highest hotness value in a specified period of time).

The United States, the world's largest economy, presented a trend basically consistent with that of the world. In the past two months, the hotness of topic "unemployment" soared, completely overwhelming "stock market" on the trending searches list.

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The data is from Google Trends and the chart is produced in WPS Office

Spain and Italy, in both of which the epidemic broke out earlier compared with other countries in Europe, found similar trend in terms of trending searches topics. In the past year, "unemployment" has been hotter than "stock market" on the list of trending searches. Following a spike two months ago, the hotness of "unemployment" has fell back to normal level.

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The data is from Google Trends and the chart is produced in WPS Office

Indonesia, the fourth most populous country in the world and one of the important economies in Southeast Asia, found that last year, because the economic situation is not very good, "unemployment" has remained a hot topic with a much higher hotness than "stock market". Since the epidemic in the country has not yet had a devastating impact on the economy, no upsurge in topic hotness has occurred.

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The data is from Google Trends and the chart is produced in WPS Office

China, one of the countries with the earliest outbreak of the epidemic, found that because of earlier outbreak of novel coronavirus, and earlier prevention and control effort, the topics on the pandemic lost momentum earlier in China than in other countries. Recently, hotness of pandemic-related topics in the country has dropped to lower levels. Most notably, "stock market" had a higher hotness compared with "unemployment" in China, as people are more concerned about the impact of the pandemic on the stock market.

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The data is from Google Trends and the chart is produced in WPS Office


C. Economic Impact


The pandemic has a more direct impact on the economy, and everybody's life is closely related to it.

It is estimated that the global economy is expected to contract sharply by 3% in 2020, much worse than during the 2008-2009 financial crisis. The pandemic has a severe impact on the economic activity, mainly reflecting in the collapsed stock markets, subdued consumer demand, and destructed industrial chains.

1. Stock Markets

For this period of time, shareholders should be cautious about investing in the stock markets. With the spread of pandemic in the world and the adjustment of economic policies by various governments such as interest rate cut, the global financial markets entered shock period in February and is showing a downward trend. Hence, it may be said that the epidemic is a fatal blow to the stock market.

As a major sign of the global stock markets, U.S. stocks market halted four times within a month of March this year. U.S. stocks also slumped in seven days of March, with the three major U.S. stock indexes, including S&P 500, NASDAQ and Dow Jones, all down.

The following picture shows the fluctuation of S&P 500 Index within one month. It plunged from 3,400 on February 18 to about 2,200, a drop rarely seen before.

High: the highest index value of the day
Low: the lowest index value of the day

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The chart is produced in WPS Office

Readers investing in stocks can look at this K-line chart for reference, which also shows the rise and fall of the S&P 500 Index, while non-shareholders can ignore this chart.

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The chart is produced in WPS Office

The movements in recent three months of all the stock indexes in the world have been excerpted. The top 10 declined stock indexes have all fallen by more than 25% during this period. The stock index "Luxembourg" was down 40%, creating the top drop among them.

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The chart is produced in WPS Office

For the top 10 well-performed stock indexes in the past two months, only 2 stock indexes, i.e. Chinext and Denmark, showed growth, and the remaining 8 behind them also fell. Almost all stock markets around the world lost, with none spared.

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The chart is produced in WPS Office

2. Falling Consumer Demand

Did you spend less these days? Is your consumer demand down? Although the decrease in our spending accounts for a small percentage in the global economy, the spending drop by all people has a great impact on the economy, especially on the import and export of various countries.
The drop in consumer demand leads to a decline in the total import and export, which in turn dramatically impacts the countries with high dependence on trade.

According to UN data, the current trade volume of major economies as a proportion of GDP is shown in the following table, which reflects that Germany, South Korea, Mexico, etc. will face greater challenges.

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The data are from UNCTAD, and the chart is produced in WPS Office

3. Industrial Chains

Not only is spending declining. With the continuous escalation of the epidemic situation, the control measures adopted by various countries, such as restriction on transportation and population movement, have also had a negative impact on the global industrial chain.

As the main import and export products, intermediate products account for 52% of the world's export trade volume. China, the U.S. and Germany are the industrial chain hubs in East Asia, North America and Western Europe respectively, and will be severely affected by the pandemic.

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The data are from UN Comtrade and the chart is produced by WPS Office


D. Conclusion


The pandemic has an influence on every one of us, whether you are a shareholder, an employee at work, or a person who takes care of the family full-time. Indeed, The pandemic has a profound impact on individuals, families and even the society.

It is certain that the economy will be affected negatively, but what is more important for us is to consider how to reduce this negative impact and how to adopt more effective methods to restore our economy and put our society back on track.

Before medical interventions such as vaccines and treatments are available, no country will be spared from the pandemic, as long as the virus is spreading somewhere. Therefore, strong multilateral cooperation is essential to overcome the impact of the pandemic. Countries need to work together to slow the spread of the virus, and develop vaccines and treatments to combat the disease.

It is estimated that the global economy is expected to grow by 5.8% in 2021 with policy support measures to help economic activities return to normal. Our society will also get back on track.

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About Author

Social Media Operation Manager. WPS Office is a free office suite that allows users to edit & share office writer, presentation, spreadsheet & PDF. Available for PC, Mac, Android, iOS & Linux.