The Coronavirus Outbreak is Shaking the Economy
The Coronavirus Will Have Major Economical Repercussions
The Coronavirus, or COVID-19 as it has been named, is spreading rapidly across many parts of the world. This has created fear among many, spurring mass purchasing of facial protection masks and other sanitary products. In addition to being a global health risk, there are many economic relations to this that some people are not realizing. The short term affects may be simple backups in production for some companies and shortages of certain products. Long term repercussions could be much different for many large companies, especially those that rely on Chinese trade as a large part of their business.
A number of tech companies are reporting shortages in high-demand products and new releases as well. Many of them have stopped taking orders until they can establish a timeline for production to resume. Some of the popular technology products affected may include iPhones and AirPods, Oculus Quest VR and ASUS ROG Phone II for mobile gaming.
This is not limited to just the technology sector however, as many other companies such as Mattel, a producer of children's toys and Under Armour, an athletic clothing company are both reporting expected losses of sales due to the outbreak. Other companies including McDonald's, Nike, Starbucks and Walt Disney are also shutting down all stores and operations in China for the time being.
Potential Quality Loss
Even when production is resumed, there could still be secondary effects that linger for companies with production and other business in China. For starters, the production plants will be starting with long lists of orders that have accumulated. They will be trying to work faster and improve efficiency in order to catch up on the demand. This could result in a decrease in quality standards to help increase production volume. If this happens, then there could be any number of issues with new products. For the tech companies, they do not want customers who are super excited to get a new phone or gaming device that they have been waiting months for, only to find out that it is defective. Or if the company catches mistakes before it reaches the consumer, then the delay will be pushed even longer. Either way, this is bad for business and could potentially hurt customer loyalty and brand perception.
Around the world, there are constant conventions and conferences to showcase the latest technological breakthroughs and product releases. The technology sectors hosts some of the most impressive of these. With how quickly the Coronavirus is spreading, and the inability to treat it, many of these conferences are being cancelled, and if not, then many of the contributors are backing out from them. The Mobile World Congress, the largest trade-show conference in the world for the mobile technology industry recently cancelled its annual event after many contributing companies backed out. Some of these included LG, Sony, Amazon and Nvidia. Other conferences have seen similar occurrences, such as the Game Developers Conference where Sony, Oculus and several others have withdrawn from attending. Facebook has also cancelled a global marketing conference in the wake of the Coronavirus.
This has even reached the gaming markets, where E-Sports have been a booming industry. Blizzard, the creator of popular games including World of Warcraft and Overwatch, recently announced that league matches will be cancelled for the time being. PUBG has also postponed their event in Berlin, a major qualifier for their global competition.
Global Stock Markets
We know that this outbreak is going to have major effects on the earnings of companies for at least the first quarter 2020, and maybe even longer. The real question is how big are these effects going to be? Companies are already working on projections for this, but it is tough to project such numbers with certainty. Some investors are putting their money on short term stock options, relying on the falling stock prices to make money. Others are furthering their portfolio diversification into sectors less affected by the outbreak.
The stock market is already taking hits as the virus is expanding more in other parts of the world including Iran, Italy and South Korea. This could very well worsen when earnings reports begin coming out. Hopefully by the time that this happens, China and the rest of the world will be back in normal day-to-day operations. If the earnings reports begin showing massive losses, and operations are not back up and running properly, then this could become an even greater economical disaster. People would be expecting even bigger losses for Q2, which could lead to major economical detriments including sell-offs as people are trying to jump ship before the stocks sink any lower. Companies could also begin to looks for other ways to cut costs to help balance their book, which could lead to lay-offs that would drive up unemployment rates.
Ultimately, global economics will be impacted by the COVID-19 virus, as any other global catastrophe would do the same. The way that companies handle this and the scope of the virus spread will ultimately tell how hard this impact will be. There is still not enough known about the virus to fully control its effects, but much is being learned daily. Time will tell how our global markets react over the next year, as well as which companies will prosper, which will survive and what ones could possibly fail in the wake of the Coronavirus.
Leave a comment