Analysis

analyses

Will the new Covid variants affect the world economy?

share

fb-icon tweet-icon
Apme Fx | Will the new Covid variants affect the world economy?

The pandemic, which we are still facing, has rocked the world’s economy in the past. We were witnessing small companies going bankrupt, people laid off at work and practically the whole world shutting down for a while. Even though the Covid situation is at this moment rather calm, there is still big possibility that the number of cases will grow and put the world’s economy back on its knees. You can read bellow, what we can expect in case of further lockdowns and travel bans, and what plan does the countries have to battle it.

The pandemic, which we are still facing, has rocked the world’s economy in the past. We were witnessing small companies going bankrupt, people laid off at work and practically the whole world shutting down for a while. Even though the Covid situation is at this moment rather calm, there is still big possibility that the number of cases will grow and put the world’s economy back on its knees. You can read bellow, what we can expect in case of further lockdowns and travel bans, and what plan does the countries have to battle it.

How Covid shocked the markets

The outbreak of Covid started in December 2021 in China. Because it was on the other side of the world, nobody thought it would come to Europe, and even more, nobody thought it will cause the damage to the markets in such way it did. When WHO (World Health Organisation) announced the world pandemic, more or less all markets collapsed. For example, oil price fell below zero, meaning oil companies paid to customers to take the oil and remove it from their inventories. However, here we are talking about non-refined oil, not the one that you fill in your car on gas stations.[1]

apme_nove

Movement of the WTI oil price in the last five years. (Source: Trading Economics) *

Because of the collapse, countries decided for quantitative easing, or in other words, to print more money into the economy. In only one year, Covid costs accumulated to 5.2 trillion dollars. Second World War for example, costed 4.7 trillion dollars (in today’s dollars). In the United States alone, spending was more than 13 trillion dollars, which is more that it was spent on their 13 most expensive wars combined. President Biden put all together 5,2 trillion dollars back in the economy – to help the companies to pay their employees, debts etc. as well as ordinary people receiving a financial boost, or voucher if you will. The financial support to people accumulated to around 1 trillion dollars. [2]

It may sound good, that the governments were helping their economies and their people, but everything comes with a price. And this price we are paying right now, when we are facing one of the biggest inflations in the last 40 years. We were facing the higher prices even during the lockdowns, as companies were put on hold and the whole economy slowed down. But it was nothing comparable to prices which are on the markets at the time of writing.[3]

Current situation

Covid situation around the world seems to be under control. Most countries removed the travel restrictions, as well as obligatory to wear masks in closed spaces. However, the situation in China seems far away from the way of life in Europe.

While the rest of the world was living relatively normal life, China battled with the new waves of Covid. That is why they have presented new lockdowns, in some parts even in two phases. Multiple companies had to shut down for 2 weeks to 1 month, including Tesla and the most important partner of Apple in Asia, Foxconn. Even though China is very progressive with their vaccination progress and is expected to reach an 80% vaccination rate of elderly by 2023, they are facing high numbers of infections.[4]

Europe and USA have the different approach though. As mentioned, they have removed travel bans and obligatory use of masks in closed spaces. But, if we take for example the same period of 2021, the situation is very similar. People were able to travel, there were minimal restrictions – mostly that people had to have the negative test or being vaccinated, however when the tourist season was finished, lockdowns were once again implemented. So, to see how governments will act this year, we will have to wait few more months to get the answer.

What can we learn from the Chinese situation?

If the scenario in Europe and the United States will be the same as it is now in China, and various lockdowns will be presented, as well as companies put on halt, we can expect the big crash in the economy again. The same as happened to Tesla and Apple because of China, we can expect the same to happen to the companies based in US and Europe. Among that, we can expect the travel companies to take the biggest hit again, as well as the price of oil. However, the scenario of oil is a little different in the moment, because of the geopolitical situation between Ukraine and Russia. Because of the embargo on Russian oil, the prices are skyrocketing. In some countries the price of diesel is reaching even more than 2€ per litre, while before the war the price was steady on around 1€ per litre.[5]

All in all, if we will be forced into another lockdown and pausing the economy, it would be very unpleasant scenario to already damaged economy in Europe. And despite that the part of the fault for the current inflation can be given to quantitative easing, Europe has decided to continue to print the money even when they will already increase the interest rates. Which, in relation to some already mentioned facts, does not look like a good idea and because of that we can expect great volatility on markets and especially anything connected to the EUR currency.[6]

Conclusion

Covid caused big disturbance and shocked the world’s financial markets. And even though we are in danger of facing another wave of Covid, governments by now should already learn from the past and be prepared to take the right actions at the right time. But, as mentioned before, we will find out more in September or October. And don’t forget, doesn’t matter the government’s actions, market always give you opportunities, so do not wait and invest now!

*Past performance is no guarantee of future results.

[1] https://link.springer.com/article/10.1007/s13132-022-00970-7

[2] https://www.nasdaq.com/articles/money-printing-and-inflation%3A-covid-cryptocurrencies-and-more

[3] https://www.bbc.com/news/business-61762131

[4] https://www.ft.com/content/d12159d4-8d94-44ae-92fe-d4ad0b731006

[5]https://www.cnbc.com/2022/05/12/gasoline-diesel-prices-rise-to-another-record-amid-rampant-inflation.html

[6] https://www.trend.sk/trend-archiv/euro-stoji-pred-obrovskym-experimentom-tlacenie-penazi-ma-pokracovat-aj-zvyseni-urokov?itm_brand=trend&itm_template=hp&itm_modul=trend_topbox&itm_position=1&fbclid=IwAR3XmlPKuawgsMxBOgielHfyBBgnX-65knE-vQP-UxNS9K-eKidGIPvantQ

Disclaimer:

The material herein is considered as marketing communication under the relevant laws and regulations, and as such is not a subject to any prohibition on dealing ahead of the dissemination of investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and should not be construed as containing investment advice, or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. The published content is intended for educational/informational purposes only. It does not take into account readers’ financial situation, personal experience or investment objectives. APME FX Trading Europe Ltd makes no representation that the information provided is accurate, current or complete; and therefore, assumes no liability for any losses arising from investments based on the supplied content. The past performance is not a guarantee of future results.

analyses

How Healthcare companies are performing as Covid calmed down

In the past two years during world pandemic of Covid, pharmaceutical and healthcare companies saw massive profits and with it also the growth of their stocks. Since the Covid si...

analyses

Medtronic

Medtronic was founded in 1949. Originally, an Irish medical technology development company, it has its roots in Dublin, but we would find the company's headquarters in...

analyses

REGENERON

Regeneron is a leading biotechnology company, that is inventing life-transforming medicines for people with serious diseases. It was founded in 1988 by a young neurologist and a...

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 86.36% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the Risk Disclosure and Warning Notice