So, the banter continues with this fresh new blog. This blog is regarding the current economic dilemma. This all started with Wuhan getting the virus and the "techie of Bangalore coming back", oh that damn techie from Bangalore. Moving on, what this virus has done to our economy and the global economy is both unseating and spine chilling. So what will this pandemic do to our economy and how things will change once the virus is eradicated? Will the lives get back to normal? Will things change? If yes, how will they change? To answer all these read ahead-
A fall in the Purchasing power- People are all indoors. No shopping spree, no profits for businesses everything is going down the drain and we don't expect it to rise once all the lockdowns are lifted and viruses are eradicated. Due to a fall in the purchasing powers of the people. There has been no business from the past few months across the globe which has made people use up their savings and now their purchasing power has been reduced by a significant amount which is going to be a big factor for slower economic growth after the lockdowns. Just like after 2008 in the USA, it was 2011 when the GDP came to the same level as of 2007, so we can expect similar growth.
Unemployment claims- As the USA claimed it has lost all the jobs it created ever since 2008 which is equal to 30 Million jobs as of April 2020. The USA has been using the unemployment funds and people have been applying for unemployment benefits, workers' compensation, and seeking welfare or temporary assistance from the USA government. In India, the unemployment rate rose to 26%( though it has improved now) and is an estimate by the UN that 400 million workers might sink into poverty. Thus unemployment will eventually lead a slower and weaker GDP growth and eventually will put a lot of pressure on our governments.
Legal Linkages, supply chain and macroeconomics- The supply chain has been withered from its very roots. China's production units were shut down thus affecting industry giants like Apple, and because of the quick transmission of the disease, all imports from China were banned for the time being. Thus disrupting not only china's trade balance but also the global trade balance(For trade information look up to this (https://www.entrepreneur.com/article/349952). Several legal factors like India's FDI policy for shared border countries and even USA's withdrawal from payments to WHO has all led to a serious downfall on the investment strategies; and the trade stops have caused serious questions on the Capital formation plans.
"THE GDP"- This uppercase is not a mistake but a way of emphasizing the importance of GDP. India being a densely populated country with plenty of tax defaulters makes GDP one of the most important measuring instruments for our economy. Fitch ratings said India's GDP will slip to 0.8 in the fourth quarter as compared to an estimated growth of 4.9% during the previous fiscal year so did the GDP of the USA where it shrank by 4.8% due to this crisis. A GDP growth strategy will be first in the line of action for our Finance ministry. Small GDP growth will further add to a small GDP per capita(a tool used to show standards of living) and India if faces a smaller GDP per capita it will mean the eradication of jobs created and more poverty and hunger.
Industry and Demand shocks- What we are facing is called market risks and not an idiosyncratic risk. This market risk affects almost every single industry out in the market. The worst affected are the transport and aviation industries along with commodities market including BRENT crude and WTI crude and all the subsequent by-products. So how has it affected the aviation industry is no shocker. All flights suspend till May 3rd, travel bans imposed, and whatnot, the aviation sector suffered a loss 3.6bn $ this quarter. The reason being industry debts, the grounding and maintenance charges which the companies have to bear (Read more about grounding troubles at https://www.bloomberg.com/news/features/2020-04-16/coronavirus-travel-what-happens-to-planes-grounded-by-covid-19). The sudden demand shocks are causing the most adverse effects on the markets. The demand for transport, oil, Mobile phones, and other non-essential items has led to a downfall in the economy.
Is someone benefiting from this?- The answer is a yes, to keep it industry-oriented and not going into the stock market gainers we can list-
e-commerce sites- Big eCommerce giants of India like Dmart, Amazon India and Flipkart all have permissions to sell necessities which prevents them from going out of business. Well, let's do get into stocks even though I promised we won't, and what we see is the highest earner from this situation is Jeff Bezos with a 20% increase in stocks and led the company to a $1 trillion market capitalization due to heavy traffic and delivery schemes of Amazon.
Online grocery delivery- The online grocery delivery is something the future business owners and startups will be interested in now after this crisis where the online grocery shopping spike with a 20% growth amid the pandemic.
Automobiles- Well this will be a shocker for most of the readers but this is the truth as seen in China. With social distancing being a topic of concern, local travels using buses and trains is something people are turning away from as stated by "CNBC".The Automobile sales increased by a drastic amount ever since lockdown was lifted in china though they are at a drastic YoY low still it is booming faster than expected.
Visa and MasterCard- Though they already are quite dominant and market leaders due to cashless systems and increased use of these online modes a high surge in Debit card demand was seen amid the pandemic.
Thanks. For reading the article do read the last article relating to Indian economics. https://www.thebusinessbanter.com/post/the-indian-economics.