COVID-19 was first detected in December 2019 by health authorities in Wuhan City, China. Since that time, more than 858,753 cases have been confirmed worldwide and the virus has spread to more than 202 countries and territories around the world, causing over 42,156 deaths. The COVID-19 outbreak is causing a global emergency and the World Health Organization (WHO) has raised its status to that of a pandemic.
In addition to significant health concerns, the COVID-19 outbreak has impacted the global economy. Just-in-time supply chains, many of which come from China, are especially vulnerable to disruption caused by COVID-19. In January 2020, Chinese officials ordered factory shutdowns throughout most of the country’s provinces in order to prevent further transmission of the virus. Despite expectations of their reopening in February, many have remained shut down. These factories make everything from electronics to car parts to medicines, and their shut down has disrupted the work routine of approximately 60 million Chinese workers.
Many experts compare the COVID-19 outbreak with the 2002-2003 epidemic. However, this comparison is misleading as the relative importance of China in the worldwide economy has vastly increased in the past 18 years. In that time, China has more than doubled its share of trade with the world, and many more industries are now depending heavily on its economy.
Due to this, the COVID-19 pandemic has caused almost every Fortune 1000 company to experience an interruption to their routine business operations. Across almost every industry, multinational companies are faced with the stark reality that business will not go on as usual. Furthermore, economists have warned that this pandemic could cost the global economy an estimated $1.1 trillion in lost income. Some experts predict that the pandemic’s after-effects will cause the global economy to shrink this quarter – the first time since the end of 2008 when a shock to the financial sector caused chaos for businesses across the globe.
Hardest Hit Industries by the COVID-19 Outbreak
Specifically, experts predict that hospitality chains, shipping companies, airlines, restaurants and the entertainment industry, fashion industry, auto companies, and technology companies will be among those hardest hit by the pandemic. The economic slowdown may also derail US plans to increase exports of manufactured goods, energy, and farm produce to China, delaying any real recovery in the rust belts and distressed farm and other areas of the U.S. economy that depend on the US-China trade relationship.
Below is an overview of the industries experts expect will be hardest hit by the COVID-19 pandemic.
- Hospitality, Cruise Ships, and Tourism
Many countries continue to limit inbound tourism, particularly from countries with a high number of COVID-19 cases. The European Union’s industry chief predicts about €1 billion losses each month in the tourism sector due to the pandemic’s impact. One of the biggest losses that is felt globally comes from a decline in visitors from China, who represent a lucrative market for tourism and a large population of luxury goods buyers.
Cruise operators also expect a bigger hit than initially projected, due to trip cancellations in Asia. If suspension of operations in Asia lasts through the end of April, losses will easily amount to $385 million – $445 million. Operators who have not cancelled trips have strictly modified their itineraries in response to the COVID-19 outbreak.
- Shipping Companies
The global shipping industry has been considerably affected by the COVID-19 pandemic and slowed shipments to and from China. Container-ship operators have canceled about 40 sailings previously set to arrive at the Port of Los Angeles between mid-February and April 1 – this has resulted in around 25% drop in container volumes. Furthermore, containership operators have also canceled a substantial number of sailings from China.
Elsewhere, backlogs and pileups continue to build. While charterers and shippers may implement force majeure clauses, such clauses are not available for some owners who control their own vessels.
With global air travel projected to fall for the first time in more than a decade, the International Air Transport Association (IATA), expects falling passenger demand to result in $29 billion in lost revenues for this year alone. Furthermore, in response to canceled flights to and from China, some major airlines have announced plans to cancel some pipeline projects, cut expenses, and offer voluntary, unpaid leave to employees.
Due to the SARS outbreak in 2003, airlines in North America lost around $1 billion as revenue passenger kilometers dropped to 3.7% of international traffic. The IATA expects the COVID-19 to outpace the SARS numbers. Some US-based airlines have already announced that they will not resume normal service to mainland China until at least April 24, 2020, almost a month later than initially planned.
Airliner manufacturers are also affected because of the factory shut downs in China that produce parts and finishing facilities.
- Restaurant and Entertainment
Restaurants and the food industry will be heavily impacted by the pandemic. Many large food chains have closed thousands of restaurants in China since the outbreak. Suppliers expect protein and raw material prices to substantially increase.
Mass entertainment venues, such as museums and concert halls, will also be hit heavily by the outbreak. For instance, the Louvre in Paris closed its doors as a precaution against the pandemic. A major rugby match between Ireland and Italy was reschedule. The Tokyo 2020 Olympics has been put off and moved to 2021.
- Fashion and Luxury Goods
The fashion industry is especially vulnerable due to the COVID-19 outbreak. For international tourists, foreign luxury brands are a natural choice. For instance, about $200 billion is spent each year on luxury goods in the United States alone. Luxury good makers project that the COVID-19 outbreak will have a material negative effect on all luxury demand. Apparel makers also expect to see their revenues decline.
- Auto Companies
Auto sales are down by about 92% in China, and European and Asian auto plants are running short on parts. Some US manufacturers may even face parts shortages in one to two weeks, if they haven’t already. Asian automakers have closed factories because of the short supply of Chinese components, European and British automakers have also warned that they may close plants because of shortages.
- Technology and Electronics
A big portion of the world’s electronics come from Chinese factories. A prolonged suspension of production will negatively impact overall supply. In fact, many technology companies have warned that they will not be able to meet their quarterly estimates due to factory shut downs. They also expect delays in the production and shipment of existing models, as well as in the introduction of next-generation models.
Other electronics producers have been forced to increase prices on products, such as microwave ovens, air conditioners, washing machines, televisions, and refrigerators due to short supplies related to the COVID-19 outbreak.
Although it is hard to determine the exact impact the COVID-19 pandemic will have on the global economy, it is evident that the impact will be significant and pervasive. And unfortunately, it appears that the worst is yet to come. Even if the tide turns quickly and the spread of the disease is curtailed, it will likely have long-lasting impacts.