Economic Collapse in Pandemic

By mjain14 | Economy under my lens | 16 Sep 2020

Over the past few years, lot many companies have predicted that a great recession will strike by late 2019 or early 2020. But perhaps, no one would have imagined that a pandemic can cause such an economic void. No one would have imagined a global lock down like situation before this in their wildest dreams.

And now it has already hit the globe like a never ending tsunami until a cure is found. Impacting 50 countries with at least 30K reported cases and 20 countries with at least 100K reported cases as of writing this blog. World economy is falling apart, people are losing jobs, small businesses are nearly shut, and consumers have lost faith, as majority of globe was under lock down.  All major economies have reported most number of COVID-19 cases. Billions of dollars have been pumped as aid in form of stimulus package.

economy under lens

Today, most parts of the world have lifted or eased the lock down and are resuming their daily activities, trying to gain new normal, in a hope to recover losses & revive economy.

Does ending lock down marks end of economic collapse or something worse is yet to come? An #EconomicPandemic? An inevitable event?


Job Cut & Losses All Around

Businesses are impacted all over the world. People are losing jobs and claiming unemployment day by day. Companies are filling bankruptcy. Retail, travel and tourism, restaurants, entertainment are among the worst hit industries.

  • US alone has reported 35 million people unemployed, touching unemployment rate to ~15%
  • International Labour Organisation (ILO) has flagged that nearly half of global workforce at risk of losing livelihoods
  • More than 3,600 companies filed for bankruptcy, according to Epiq till June in US alone
  • Hundreds of thousands of retail stores are getting shut down and many have filed petition for bankruptcy
  • Postponement of the 2020 Tokyo Olympics would cause an economic damage of ¥640.8 billion to Japan alone as reported.

global unemployment rate

Consumers & Investors Losing Confidence

Consumers across the globe are losing confidence. Drastic shift in spending pattern and priority have been noticed. People spend is more focused to essential items and daily necessities.

Even in country with no lock down like Sweden, has seen shrinking economy. Lesser number of people are eating out, buying new apparels. No one can risk new investments. Some contributing factor to low confidence:

  • Job insecurity or income instability
  • Fear of pandemic with no cure out their
  • Small businesses are running out of money
  • Public gatherings are prohibited
  • Situation of panic with rising numbers
  • Helpless central systems
  • Students across the globe are suffering from their curriculum disruption

Domino Effect

Every business whether small or big are all interlinked to each other. With one business impacted, causes a ripple impact to many small businesses.

Example: If a restaurant chain owner closes a branch, then it causes:

  • Unemployed staff
  • Impact sales of vegetable seller
  • Property owner stop receiving rent
  • Property owner reduces his/her expenses
  • And the chain goes on....

And this ripple effect takes place very gradually to be actually seen. Tourism, Airlines and retailers been hit the hardest, disrupted the whole supply chain management. Most of European countries rely on tourism sector, and its ripple effect is yet to hit the whole world.

Why Stock Markets Are Still Holding Their Grounds?

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Dow Jones for 3 months

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S&P 500 for 3 months

March 2020 was the month when pandemic has took over the world completely and markets reacted the same way. Almost every market saw a drop of 30-35% globally in the month of March. And since then only companies have been filing bankruptcy and people are claiming unemployment. But, market has been recovering and holding its ground which is quite opposite. Why? Its due to trillions of dollars being pumped as aid.

Governments across globe have announced aid in form of stimulus package to support falling economy by lending thousands of small businesses, infrastructural projects and bail out labor market. Trillions of dollars have been pumped, contributing good percent of their GDP.

Stimulus Package of selected countries

Central systems are printing and pumping more money to delay the economic collapse and minimize it in hope of a cure or vaccine. This forms a bubble where market trend has increased but people are losing jobs, booking huge loss in business.

Beginning Of Economic Collapse

Central systems will soon run out of their reserves. When governments wont have enough money to aid their people and bail out businesses then real economy will shape up. By that time ripple effect would have already booked huge losses. By September or October people will see actual economic condition.

Also, with no vaccine available, world is bound to followed by continuous wave of pandemic and millions will suffer for daily survival. People will struggle to pay loans, and eventually lose their mortgages. Buyers in market reduce drastically and real estate can see maximum dip.

This economic collapse will take years to recover. This can be a potential #EconomicPandemic.

Prepare To Gain From Collapse

If you are planning to invest in market or real estate, then probably you need to hold for now. Start accumulating or saving money for investment. Try to maintain liquidity, when actual collapse will happen then probably you can use your liquidity to buy the dip.

In coming months, prepare for bearish market and this is the time to invest. Always follow two rules:

  • Buy the dip
  • Market always bounce back

Invest, keeping long term gain in mind. As mentioned, recovery can take quite a good time.

Hedge your investment by investing in:

  • Commodity
  • Digital Assets like cryptocurrency

Cryptocurrency adoption can be good to ensure your hard earned money is safe as its completely decentralized. Because in coming days, even banks are not trustworthy.

I hope you like my article, do share your thoughts below!


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Big Data Developer & Analyst | Blockchain researcher | Traveler

Economy under my lens
Economy under my lens

Understanding economy situation and draw some logic out of it. How it will will be shaped in future and what are its repercussions.

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