Whether or not the coronavirus escalates into a global pandemic, there is no doubt that the virus is already affecting the politics, economics and social constructs internationally. As governments continue to work on the best solutions towards handling the outbreak, economic costs are only continuing to grow rapidly, ultimately creating even more losses for nations and their domestic economic sectors.
Effect on Economic Markets
So how are stock markets experiencing a global crash from the coronavirus? What is the connection? According to Eswar Prasad, a senior professor of trade policy at Cornell University, the global supply chain is being disrupted due to labor shortages, the inability to get raw materials reliably, and the difficulty in exporting products internationally within East Asia. “Countries such as China, South Korea and Japan are critical to the supply chains for products ranging from plastic toys to iPhones to high-tech machinery,” Prasad said. Multinational corporations such as Apple and Microsoft have huge manufacturing plants within these regions, specifically China. And with over 500 million people affected by policies put in place to restrict movement in China alone, many civilians do not have jobs to return to. This in turn affects the economic progression of international companies, like Apple and Microsoft, that depend on those areas of the world to assemble certain technological parts for their business. “Another quandary that governments face, especially in China and other countries hit hardest by the coronavirus, is how to balance containing the spread of the epidemic with keeping their economies humming,” Prasad continued. “Every day that factories stay closed and restaurants have no customers makes it harder to get things back up.”
These aren’t the only reasons for the stock market crash, though—one of the biggest causes for this global economic decline is the fact that investors are pulling out and selling their stock to get their money out of the market. According to Rodrigo Campos, a journalist for the news company Reuters, over $5 trillion was wiped from the global financial system last week, with nearly $1.6 billion of that coming from fearful investors. “The uncertainty hovering over the markets will only be alleviated when there is a sense that the worst is almost over,” said Quincy Krosby, Chief Market Strategist at Prudential Financial Incorporated. “Until then it is risk off.” With stockholders transitioning to “safer” investments, many economic sectors are suffering from the effects that the coronavirus has had on the global economy, and all sectors are questioning if they will be able to bounce back from this financial halt.
Economic Sectors at High Risk
All stocks are being affected in one way or another, but some are currently hurting a lot more than others. According to Jeanna Smialek and Jack Ewing, two journalists from The New York Times, the outbreaks in China, Japan, Iran, Italy and South Korea have significantly slowed tourism down for each nation, halting the travel sector tremendously. Airlines and aviation stock is already down by 21 percent since the start of this year, as well, signifying a serious economic loss for companies such as American Airlines and Air China. The thing is, the aviation industry isn’t the only one experiencing the impacts of the economic crash—the hospitality industry, another huge sector within the international travel stock, is also feeling the effects of the stock market decline. “Marriott has been hard hit on the expectation travel restrictions in Asia and consumer wariness around travel would hurt overall revenue,” Keris Lahiff said, a Markets Producer for the news outlet CNBC. “It has declined nearly 20 percent so far this year.” These industries have experienced a serious economic downfall due to the virus that has shocked the world. Since domestic markets are intrinsically connected to the international economy, much of the globe is feeling the overall decline in stock. This indicates that not only the weaknesses in foreign markets, but also the interwovenness of our economic world, and how affixed our politics, economics and culture is to that of other nations.
How the Economic Crash Affects Us
So how does this stock market crash affect you, especially if you aren’t investing in stock? One of the biggest ways that you could be affected by this crash is through price deflation. For example, if you own a car, you might have noticed a decline in gas prices. According to Jay Young, CEO and Founder of the King Operating Corporation, the average price of regular gasoline has dropped more than 12 cents within the last month due to the virus. The reason for this economic drop is due to the fact that China is the world’s biggest importer and largest consumer of oil, and since most factories and companies are currently shut down within the region, there is a huge decline in oil and gas prices that are being felt across the globe.
Another way you could be affected by the crash is through your retirement account. Retirement accounts such as the 401K or the IRA are invested within the American stock market. And with over 55 percent of Americans owning one of these two kinds of accounts, the chances of your 401K or IRA experiencing a negative impact from the crash is quite likely. The good news? These kinds of stocks are built to weather the drops over many years, which means there is plenty of time to make up for any losses that could possibly be experienced from this downfall.
Global Issues and Global Effects
As the global economic system seeks to regain itself, it also seeks to emphasize the vitality of international issues such as the coronavirus. The decline and stagnation of stock due to a global crisis is nothing new—during the SARS outbreak in 2003, the S&P 500 dropped 8.3 percent. These international problems put everything at risk, and are interconnected to the politics, economics and culture of our world. The good news is each time a global issue has affected the international economic market, the international economic market has bounced right back up to where it was before. But the notion that this outbreak is just creating a short-term economic shock now seems unrealistic. So will this stock market crash have long-term effects on economic growth, even if the coronavirus is proven short-lived? I guess we’ll just have to wait and see.