According to the IMF data and research, we confront a global financial crisis once every decade. Every financial downturn has a terrible negative impact on the world economy which is also known as the ‘Black Swan Event’. In the last “Great Recession” of 2008, we experienced a horrible downturn as all of a sudden the stock market crashed around the world concerning the U.S.A housing market collapse completely. After a long 18-months impact, the stock market price declined in the global market by 56%. In the USA alone, the unemployment rate had risen to 10%. Many big companies went bankrupt, such as Lehman & Brothers, Bear Stearns. The banking and financial industry suffered losses of about $450 billion.
After all, this global financial downturn is considered to be a very challenging time for people all over the world. The economic recession cycle takes place within 8 to 10 years. On August 28, the National Association for Business Economics (NABE) conducted a large-scale economic survey by their economists, with 72% of experts saying that we are going to face another global economic downturn by 2021. The UN trade body “UNCTAD” published a report in The Guardian, September 2019 saying that the global financial downturn will begin at the end of 2021. By analyzing this data and looking at the current state of the world caused by PENDAMIC COVID-19, we can imagine that another financial depression may have come too close to us.
- Type of virus: Zoonotic type transmitted between animals and people.
- Origin: Wuhan, capital of Hubei province, China.
- How it spreads: coughing and sneezing, close personal contact, traveling, shaking hands, touching objects with virus on it and then touching nose, mouth or eyes.
Origin of the virus and dependency of the global economy-CHINA
China today serves as a hub or supply chain for many important economies around the world. If we were just talking about the garment industry in our country, where do the threads, buttons, stickers of garments that are made in the garment factory come from? These are mostly exported from China. Electronic products such as TVs, fridges, etc. are only assembled here but all of the important parts coming from China. Most of Apple’s production facility is now in China. Besides, General Motors, Honda, is one of the world’s largest car manufacturers and their plants are located in Wuhan, where the novel coronavirus originated.
Economic Inter-dependency
Germany is the country where most of the world’s most expensive branded cars are manufactured such as Mercedes-Benz, BMW, Audi, etc. But the tires of those cars are exported from China. Currently, China is in a locked-down stage which is hampering the flow of export to Germany and how would cars be driven without tires? In this age of globalization, countries around the world are economically dependent on each other in what is called Economic Inter-dependency. Production chains around the world suffer greatly due to the Covid-19.
| ব্যাংক, ব্যাংকার, ব্যাংকিং, অর্থনীতি ও ফাইন্যান্স বিষয়ক গুরুত্বপূর্ণ খবর, প্রতিবেদন, বিশেষ কলাম, বিনিয়োগ/ লোন, ডেবিট কার্ড, ক্রেডিট কার্ড, ফিনটেক, ব্যাংকের নিয়োগ বিজ্ঞপ্তি ও বাংলাদেশ ব্যাংকের সার্কুলারগুলোর আপডেট পেতে আমাদের অফিসিয়াল ফেসবুক পেজ 'ব্যাংকিং নিউজ', ফেসবুক গ্রুপ 'ব্যাংকিং ইনফরমেশন', 'লিংকডইন', 'টেলিগ্রাম চ্যানেল', 'ইন্সটাগ্রাম', 'টুইটার', 'ইউটিউব', 'হোয়াটসঅ্যাপ চ্যানেল' এবং 'গুগল নিউজ'-এ যুক্ত হয়ে সাথে থাকুন। |
Over the past two decades, China has become a place of great dependence on the global market. Now the loss of the Chinese economy means the loss of the economy around the world. China is one of the countries that exports heavily and also imports huge volumes from different countries to meet the needs of its own large population. China is the world’s largest producing country and considered as the top country in importing crude oil (mineral oil). If we talk about the tourism business in the world, Chinese travelers are leading with a total of 150 million overseas trips in the year 2018, which has added nearly $277 billion to the world tourism industry.
Alibaba
During a briefing at Alibaba, one of the largest major companies in China said the supply chain had collapsed due to coronavirus and that local demand for China had dropped unexpectedly. If this situation is not resolved quickly China will face an extreme financial crisis. Significantly, the headquarters of Alibaba is located in Hangzhou, one of the largest cities in China. The entire city is currently locked down and whose economic activity is now almost zero.
From the seventies to the nineties, a famous line was often heard at various events in the world economy – “When the U.S.A sneezes, the world catches a cold”. This is considered as the language of economics. U.S.A is a large economy country that accounts for about 25% of the world’s GDP or a quarter. That’s why a small issue in the U.S.A creates a serious impact around the world. Although according to nominal GDP, China is not as big as the U.S.A’s economy, but they now contribute about 19% of global GDP. Therefore it is undoubtedly true that the loss of China’s economy will have a profound impact on our global economy.
About one-fourth of Bangladesh’s imported goods come from China. Our export-oriented apparel (RMG Sector) is most likely to suffer from the effects of coronavirus. During the last fiscal year, $413 crore worth of clothing was exported. Of this, a large portion worth $1217 crore raw materials and the majority of the apparel factory equipment were exported from China. Apart from the garment industry, the raw materials of leather and medicines, electronics and mobile industries are completely dependent on China. Besides, Bangladesh is also dependent on China for the raw materials used in manufacturing rods, corrugated iron sheets, and ceramics.
China is the only market for the export of jute-stalkash or charcoal. Several entrepreneurs have been involved in this sector, which has grown over a decade. Thousands of tons of jute-stalk ash are piled up in the factories of the exporting companies. These products cannot be shipped to China due to non-export orders.
The word Pandemic comes from the Latin word ‘Pan demos’ where Pan = Earth and Demos = people. That is why when a large number of people all over the world suffer from a debilitating disorder, it is called Pandemic. The World Health Organization (WHO) declared COVID-19 as a pandemic on March 7, 2020.
Crude Oil
On December 31, 2019 the price of Crude Oil was $66 per barrel. In the middle of March, that is in just two-and-a-half months, breaking the last five-year record, its price has dropped about 70% to only 22 per barrel. Such an abnormal drop in the price of oil indicates that not only oil, but also the demand for everything decreased. And if there is no demand in the international market, how will the export business continue? It is therefore bound to have a negative impact on the global economy. There is a term of economics named equilibrium which says when demand for something goes down, its supply decreases and if supply decreases, the output will decrease. GDP growth will be hampered if the output is reduced.
Tourism Industry
Almost all countries have made restrictions on tours and travels. People are refraining themselves from dining in restaurants, shopping to stay safe from the coronavirus infection. The tourism industry is a big part of the global economy, and other sectors – big investment companies like hotels, event management, entertainment and airlines that are involved are all now stagnant. Many airlines have already begun shedding their staff.
Online shopping
Many people may think that our current crisis can be accommodated by maintaining the supply chain through online shopping. But remember that online shopping is intimately involved with the ground level. Online shopping can be done continuously only after staffing takes place at ground level.
Impact on Bangladesh’s economy
About 84% of the country’s exports are from the RMG Sector. According to information provided by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the buyers have already canceled 94 crores and 50 lakhs orders of 1097 garment factories, which resulted in a financial loss of about 3 billion dollars. Currently about 2 million garment workers are affected. This is just a picture of the RMG Sector of our imported merchandise. Bangladesh’s emerging economy is going to be severely damaged due to the Coronavirus and we are completely unaware of what’s going to happen tomorrow.
Stock market
Any unexpected economic crisis triggers tension between the stockholders. A chain reaction is created between them for fear of loss in the future. At that time, investors generally consider putting their capital in the stock market as risky. On March 11, the World Health Organization (WHO) declared COVID-19 a pandemic, and the next day after Donald Trump banned travel to Europe, the global stock market dropped by 10%, and was recognized as ‘Black Thursday’. Starting from the first half of February, the global stock market prices have fallen to 5% in mid-March. And in the days ahead, the rate of tariffs is likely to rise further. Just 12 years after the “Great Recession” of 2008, we are once again at the doorstep of another Great Stock Market crash.
Impact on the stock market of Bangladesh
On Sunday afternoon, March 8, 2020, the information about the identification of three coronavirus patients was first reported in Bangladesh. The share price of most of the listed companies during the week has fallen due to a one-off decline. As a result, the amount of money invested by stock market investors has dropped to BDT 15,000 crore in one week. In the last four weeks of the fall, investors have lost about BDT 50,000 crore. Stock index of Dhaka stock exchange (DSE) has fallen by 4% and transactions decreased by 25%.
Impact on world GDP
It is difficult to estimate the amount of loss that will affect the world GDP due to the coronavirus. Some well-known economists like Victoria Y Fan, Dean T Jamison and Lawrence H Summers predicted in the year 2017 that if a global pandemic came to us our global GDP would face a loss of 500 billion dollars that accounts for 0.6% decrease in world GDP every year.
Those who are benefiting at this time
The human community of the world is in great danger today because of the on-going situation due to COVID-19. Thousands of people are dying every day. It is not ethical to discuss which individual/organization is benefiting at this time. But reviewing how a sector is benefiting is also an integral part of the economy and we are talking about the economy here.
At present, companies producing antibacterial products are quite profitable – such as Dettol, Savlon, Lizol, etc. Demand of these companies in the stock market is quite high too. At this time, investors are more interested to invest in physical markets by removing money from the financial markets such as the stock market, money market, bond market, foreign exchange, etc. Crisis moment like this Gold is known as save heaven for the investors and this time it became the first choice of investors. The market for gold is quite profitable now and prices have also risen due to higher demand for gold, which has broken the record of the last seven years.
Courtesy: Rishad Mahmud, Writer & Banker
Digital Banking & Fin-tech Professional
