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The Impact Of Coronavirus On Economy

Start-ups will have to explore cost-cutting measures to increase their odds of survival during the COVID-19 era.

Photo Credit : Reuters

Let's face it; the coronavirus will change the way we live for most of 2020. According to most health experts, it's unlikely that we'll be able to develop a vaccine in the next 12-18 months. So now, all we can do is practice social distancing, adopt hygienic habits, and wait it out.
Populations are quickly acclimatizing themselves to this new lifestyle, but how will the economy be impacted?

World economies have given us a glimpse of what the future holds, and it spells trouble. Global Indices have been consistently hitting the lower circuits, causing a significant decay in global wealth, and for now, it looks like a sea of red with no country being able to withstand such powerful and indiscriminate selling.

: Cruise line businesses are sinking. Airliners are cancelling thousands of fights. Enormous flying restrictions by world governments and a reduced appetite for travel have put the tourism and airline industry in a downward spiral. Tourists aren't interested in risking contamination or ending up victims of a government quarantine program.

As a result, businesses involved in these industries are resorting to massive layoffs and exploring ways to significantly cut costs to survive. Experts understand that the cash-bleeding airline industry will require $200bn in emergency funds to maintain operations beyond May. Qantas, the world's largest airline by fleet size, has laid off 30,000 of its employees and cancelled all international flights for the time being. Boeing's stock has fallen from a price of $318.27 at the beginning of last February to roughly $100 today.

Numerous companies that profit from the tourism industry will face bankruptcy and millions of jobs will be lost. The airline industry will suffer significantly, with no real end in sight. Governments will have to intervene with sizable bailouts to protect the industry.

The coronavirus outbreak has given the world a supply-chain shock it has never seen before. China, the world's biggest supplier of raw material, had significantly reduced output causing massive disruptions to global supply chains. Businesses worldwide are having to deal with delayed raw material shipments and difficulties with receiving supply chain information from China. As a result of this chaos, manufacturers are witnessing their inventories shrink, with a missing to a weak plan B to tackle such shortages.

As China returns to normalcy, we are now seeing the west being heavily impacted by COVID 19 which will invariably result in a significant decrease in consumerism causing demand disruptions as well, the likes of which we have never seen before. Bill Gates was right in calling this outbreak a once in a lifetime event as the destruction it will create is incomprehensible right now.

RESTAURANTS, PUBS AND RETAIL OUTLETS SUFFER: Countries suffering the most from the pandemic have temporarily asked pubs, restaurants, and malls to shutter. This will have significant economic consequences on the hospitality industry, which undoubtedly will cause a large number of businesses to close permanently.

Retailers (notably in the luxury space) are having to deal with negative demand for their products. Luxury retailer Burberry has closed almost 38% of its stores in mainland China. Popular sportswear manufacturers such as Nike and Adidas have closed their stores across most of North America, Western Europe, and Oceania. On the other hand, Starbucks is still running cafes and is implementing sanitary measures to tackle COVID-19. But, employees are at the risk of getting infected, and are requesting management to close outlets.

Other brands are slashing prices and looking to e-commerce sites to save them (although e-commerce only accounts for 4% of luxury brands' revenue.).

Empty tables have become a regular spectacle at pubs and restaurants in countries that still have them open. As social distancing is getting further adopted, these businesses will find it hard to stay alive unless there is monetary intervention by governments.

LIVE EVENTS CANCELLED: The NBA has halted its season, FIFA and UEFA have cancelled football fixtures, and the BCCI has suspended the IPL till April 15. Leading event management groups have postponed their live music festivals (such as SXSW and Coachella) indefinitely. Governments have ordered cinema halls to close until the virus's negative impact reduces. In other words, any live event that hosts large groups of people will not take place in 2020.

Disneyland, across the world, has closed indefinitely and have promised to pay their workers during the shutdown. Sadly, not all businesses have the wealth that Disney does, and their likelihood of survival during coronavirus season is all but unlikely.

Against world sentiment, the International Olympic Committee intends to continue preparation for the summer games in Tokyo. But, considering the nature of the pandemic, expect nations to avoid sending their athletes should the situation not dramatically improve.

Angel Investors have now lost about 30% of their wealth in the stock market and will be averse to investing in riskier asset classes. VCs will become picky while choosing start-ups to invest in. It's hard enough for start-ups to raise money during a healthy economy, so imagine fundraising now against insurmountable odds. Start-ups that have already shown results have higher chances of survival. But, their pre-seed and seed-stage counterparts will experience difficulty in closing larger rounds, thus having to deal with shorter runways.

Start-ups will have to explore cost-cutting measures to increase their odds of survival during the COVID-19 era. All is not lost though, in such uncertain times there will always be a need for innovation to help reduce costs and increase revenue and this presents an opportunity for new entrants to capture a large part of the market. At least in the B2B space.

The coronavirus has cost us lives and has damaged the economy considerably. The health crisis that is playing out has been more impactful than the SARS outbreak of 2003. However, I do believe that we will recover from this much faster than any downturn we’ve seen before. It will get worse before it gets better and the best way to minimize risk is to work together as a community and ensure that everybody does their part in keeping this pandemic in check.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Ashwin Chalam

The author is CEO, Bridged

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