This Wednesday, it will be exactly two years since the start of the covid-19 pandemic. On December 1, the first case with symptoms was officially recorded in Wuhan, China. In the following analysis, the international broker APME FX focused on evaluating the impact of the health crisis on the world economy during these two years.
The SARS-CoV-2 pandemic has ended one of the longest periods of continuous economic growth the world has experienced since World War II. In the case of the United States, it was even the longest-lasting prosperity in the last 75 years. However, the health crisis has hit the global economy much harder than the previous financial crisis that hit the world in 2008 and 2009. And it has made a significant contribution to structural change.
The coronavirus crisis differs from the financial crisis of twelve years ago in several respects. First of all, it caused a deep economic downturn around the world. Gross domestic product has been declining in both the most developed countries in the world and the so-called emerging markets, as well as in the poorest parts of the planet.
According to the International Monetary Fund, the fall in global GDP in 2020 was 3.1 percent (in 2009 it was only 0.1 percent). Developed countries fell by 4.5, developing and least developed by 2.1 (they only slowed their economic growth to 2.8 percent 12 years ago). The IMF expects growth of 5.9% this year.
Not all crises are the same
The second significant difference between the two crises is that the financial crisis has caused a general decline in economic activity combined with a slump in global demand and a slowdown in virtually all sectors of the economy. Governments and central banks immediately responded to the crisis caused by the pandemic with massive demand-side support, and the economic downturn was almost entirely to the supply side of the world economy.
This results in a third difference in the current economic crisis, namely the uneven impact on individual sectors. While air traffic, tourism and the automotive industry have "caught" the first and full impact, other sectors have experienced an unprecedented boom. It is mainly the pharmaceutical industry or information and communication technologies.
Aviation adds up losses
According to a study by the International Civil Aviation Organization, in 2020 the number of air passengers dropped by 60 percent year-on-year. Although there has been a slight recovery this year, the global aviation industry is still about half as small as in 2019. The absolute loss of passengers last year was 2.7 billion and the airlines lost $371 billion in sales. And this year's balance should not be much better.
Tourism is ruined
The World Travel and Tourism Council (WTTC) has estimated the loss of global tourism in 2020 at $4.7 trillion, making tourism the most affected sector in the world. Back in 2019, tourism accounted for 10.4 percent of world GDP, a year later it was only 5.5 percent, or about half. As a result of the Covid pandemic, about 62 million jobs were lost in tourism. The biggest drop in sales occurred in countries that are literally dependent on tourism, which mainly affects the underdeveloped countries. The Caribbean was hardest hit, with tourism revenues falling by 58 percent year-on-year last year. But this year's balance is expected to be even worse.
According to October data from the World Tourism Organization (UNWTO), the global volume of inbound tourism in the first half of this year decreased by 80 percent compared to 2019, while last year's year-on-year decline was "only" 73 percent. However, the year-round data will probably be slightly better, as they do not yet include the summer tourist season.
The automotive industry is rising only slowly
The third sector so far defeated is the automotive industry. The International Organization of Motor Vehicle Manufacturers (OICA) said last year's decline in vehicle production was 16 percent. Thus, 78 million fewer vehicles were produced than in 2019, which is a level comparable to 2010.
However, the crisis in the automotive industry continues this year, due to a chronic shortage of important components, especially semiconductors. There is also a risk of a shortage of magnesium, aluminium and other materials, without which the production of vehicles cannot do without. Although the first half of this year brought a year-on-year increase in the number of new registrations by less than 30 percent, September and October confirmed that the journey to pre-crisis levels will be long.
The winning campaign of the pharmaceutical industry
The pharmaceutical industry is moving in the opposite direction due to the coronavirus pandemic. Its global turnover climbed to $1.25 trillion in 2020, which was about 1.6 percent more than a year earlier. A similar trend is expected to continue this year, according to the analytical company Globe Newswire. The coronavirus crisis has clearly contributed to the growth of the pharmaceutical industry, which has, among other things, accelerated the development of vaccines and drugs against coronavirus infections.
Globe Newswire predicts that the global pharmaceutical market will grow to $1.7 trillion by 2025, an average of eight percent annually. The largest players in the sector will continue to be five companies: Pfizer, Hoffmann-La Roche, Johnson & Johnson and Mreck & Co.
Technology giants at the forefront
If the coronavirus crisis has brought something good, it is intensifying cooperation between technology and pharmaceutical companies. Vaccines based on mRNA technology are proof of this. However, the pharmaceutical sector will continue to benefit from this cooperation in the coming years, and it is not for nothing that technology giants such as Google, Samsung, Amazon, but also Microsoft and Apple have tried to enter the pharmaceutical business before the pandemic.
The coronavirus crisis has accelerated the rise of technology companies, also because people have had to learn to work online in an effort to curb the spread of the disease. Suddenly, the share of work from home increased significantly, and education also moved to the online regime.
Technology companies also rule the world's most valuable companies, dominated by US giant Apple. Among the top ten, we find seven representatives from the technology sector. Six of them are American, but technology companies from China are also applying for their place in the sun. The proof is the Tencent Holdings group, which until recently surpassed the American carmaker Tesla in market capitalization.
Peter Svoreň, Chief Analyst, APME FX