the effect of coronavirus on global economy

Besides its worrying effects on human life, the coronavirus (covid-19) has slowed-down not only the Chinese economy but also the global economy at large. Over time, china has become the central manufacturing hub of many global business operations. Any disruption in china’s manufacturing output is expected to have repercussions elsewhere through global value chains. Recent data from china shows a decline in manufacturing output.

This year has already being defined by the outbreak of the coronavirus which has killed thousands and infected thousands more, putting a halt on china’s economy. With most part of the country placed on lockdown, the virus has managed to affect up to 42 percent of china’s economy.

Companies are struggling to make profits and finding it difficult to make payments on loans leading to non-performing loans of $1.1 trillion. Chinese airlines have being forced to ground planes and are expected to lose $12bn in revenue. Globally, the airline industry may lose up to $29bn, according to the International Air Transportation Association. And the effect of the covid-19 is being felt regionally.

The economy of most countries has plunged into recession, with companies and manufacturing industries under lock and key and sporting activities which generates large revenue for countries like England, Italy, Germany, Spain and France has been placed on hold due to the spread of the pandemic.

Take Argentina, for example. The economy of the south-America nation is expected to contract for the third consecutive year. Inflation is running at more than 50 percent and the country is in talks with IMF (international monetary fund) to avoid a default on its debt.

Since the late 1950s, the IMF has provided loans and bailouts to Argentina more than 20 times, but has finally admitted that Argentina’s debt is unsustainable. The country has debts of more than $320bn. The IMF now says they will have to take losses on their holdings. And there seems to be a determination in Buenos Aires that will not accept any new austerity measures. In fact, the president of Argentina Alberto Fernandez has instead frozen prices and increased salaries.

Richard Segal, a senior analyst with Manulife Asset Management, explains that the situation in Argentina has been stressed for many years.

“The IMF is acknowledging what we have understood for a long time, meaning that the public debt is unsustainable and it needs to be written down quite substantially,” Segal notes.