27 Sept 2020
COVID-19’s impact on the economy- Has the worst phase passed?

    As economies are attempting to provide a kickstart to the plummeting economy, the common question bugging all the analysts and investors is whether the worst is over. With uncertainties prevailing in the economy due to the pandemic, it is difficult to predict the dynamics of the economy- how turbulent it will be and what will be the values of stocks, commodities and currencies.

    However, the best way to start is to assess the information we have and use it as a strong foundation to establish what is to come in the next few weeks or months.

    The economic impact and what we know so far

    The damage to the worldwide economy that the pandemic situation inflicted is already thoroughly documented. Unemployment has hit an all-time high in the US, pegged at 14.7% and the S&P 500 took only 22 days to plummet by 30 per cent from their record which was set on February 19th.

    To put it into perspective, such has been the magnitude of the damage that according to the dataset established by Bank of America, that is the fastest recorder drop in the history of the US economy. Such 30 per cent pullbacks were previously recorded during the Great Depression years in 1929, 1931 and 1934.

    Since then, the market has started to recover with the S&P 500 managing to recover the losses within 90 days since the drop. But analysts predict that the worst is yet to come.

    Is the worst yet to come

    As earlier mentioned in this article, with the uncertainties prevailing, it is nearly impossible to predict what the situation of the economy will be within the next few months. But according to assumptions, the US is looking at a phase that can be regarded as severely threatening. On June, 30 per cent of American failed to make their house payments. Even worse, around 30 million Americans will lose unemployment benefits according to a recent order charted out by the Government.

    Even if there is a prospect of the infection curve being gradually flattened, consumers will avoid any contact-based activity until a viable vaccine or treatment makes headlines. Travel is taking a humongous hit in the States. Some governments are relying upon federal bailouts just to survive.

    Oil prices are at rock-bottom, which is affecting the banks financing high-debt operations, Insurance companies are also looking at a prospect where they have to pay considerable sums to a vast number of business-holders that have been forced to stay shut due to stay-at-home orders.

    Is there a brighter side to this crisis?

    For companies who have available capital to spend, there will be opportunities to make investments and acquisitions where there will be a prospect of good returns.

    Striking a resemblance with the 2008 recession crisis, a rise in home evictions due to failure in mortgage payments has been predicted. No less than 50,000 residents who live in New York are facing this threat. With excess housing stock, prices are bound to fall, opening up opportunities for those with resources to get a hold of below-value properties and enjoy good rental yields.

    The stock market won't be short of opportunities as well. But it is still in a volatile state. Investors who have been lured by stock prices with huge dividends and low P/E ratios have not taken into account that revenue in Q2 and Q3 will keep falling as the real bite is made into the economy by the pandemic situation.

    Although a faster recovery might seem impossible, it can be hoped that gradually with a few rises and falls, the economy stands a chance to be back on track. However, analysts believe that reality might be worse. Unless the Q2 earnings are documented, the picture remains unclear.