Global impact of Covid-19 on businesses severe and confidence low
The global impact of Covid-19 on businesses has been unprecedented with many businesses being forced to close down altogether and others struggling to survive.
The long term ramifications of the pandemic will also be significant, with the International Monetary Fund estimating that global GDP will decline by 3% in 2020, 6.3 percentage points lower than estimates made in January this year.
According to a report by Wine Australia, seven in ten businesses have reported that reduced cash flow and reduced demand for goods and services are expected to adversely impact their business over the next two months, while over half expect to be negatively impacted by government restrictions, and two in five expect supply chain uncertainty.
Business confidence has taken a pummelling too, with the number of business owners in the UK restaurant and bar sector reporting optimism about the overall market nosediving from 60% in February 2020 to a mere 5% in April 2020.
Two-thirds of respondents identified being able to pay the rent as the biggest challenge, while just over half also identified access to loans as a major hurdle.
This decline in optimism is not just reserved for the UK. The Organisation for Economic Co-operation and Development’s (OECD) Business Confidence Index shows a decline in optimism starting in February 2020 across all 37-member countries. However, confidence has not yet fallen to GFC levels, and businesses in the UK are much more pessimistic than those in the US.
The forced closure of many business has resulted in rising unemployment around the world. In Australia, where the ABS estimates that 2.7 million people have been hit by job losses or reduced hours, the numbers of those out of work increased by one percentage point to 6.2%, a level not seen since 2015.
However, this number does not reflect the additional workers who have been stood down on a temporary basis or are working fewer hours due to Covid-19 lockdowns. But the number of hours worked has gone down by 9.2%, the underemployment rate is up by 4.9 points to 137% and the underutilisation rate is up by 5.9 points to 19.9%.
The picture in the US is even worse. Last month the official unemployment figures rocketed to 14.7%, reaching a level higher than anything seen since the GFC. Last week Goldman Sachs warned that it expects the unemployment rate to jump to 25% before coming down, in line with rates last seen during the Great Depression of the 1930s. However, the US Labour Department has claimed that if people who were absent from work for “other reasons” had been classified as unemployed, the rate would be closer to 20%.
In mainland China, meanwhile, official government statistics report that after unemployment jumped in February to 6.2% from 5.3% in January, it is now starting to recover.
Rates of annual GDP change in 2020 are estimated to be·
- Australia, down 6.7 per cent
- China, up 1.2 per cent
- USA, down 5.9 per cent
- UK, down 6.5 per cent
- Canada, down 6.2 per cent
Source: International Monetary Fund