Last Friday, the ASX All Ords, Dow Jones and global stock markets made a u-turn and rally a few percentage points after a massive drop on the same day. Is this the end of the bear market or is the market heading for more drop?
Covid-19 was first discovered as early as November 2019 and spread quickly to many countries across the world. Although it has slowed in China, it is still spreading fast in other countries causing Italy to announce a lockdown while Spain and France followed suit. The U.S. has just announced a national emergency while more countries may take more measures to try to contain the spread of the virus. The speed of Covid-19 spreading however will not slowdown anytime soon. In fact, in some countries, Covid-19 infection seems to have just begun spreading or may have been even remained undetected until just recently.
Outside of China, while more and more small businesses are feeling the impact to their business since January this year, larger corporations have in recent weeks just begun closing down retail stores, offices and liquidating assets and sending staff home in a race to cut costs to stay afloat. Airlines in particular have been hit hard. Many have cut their fleets and routes and employees were asked to take unpaid leave. Flight centre have also announced closures of 100 retail offices. All of this happened in just a matter of weeks and it doesn't even look like it is about to end yet.
So how much will the economy be impacted? Consider this statistics in 2018 - according to World Travel Tourism Council, the global Travel Tourism sector in year 2018 contributed $8.8 trillion and 319 million jobs to the world economy. Of the $8.8 trillion, 78.5% was spent on leisure spending while 21.5% was spent on business travel. International tourists contributed 28.8% while 71.2% of spending comes from domestic tourists. Travel Tourism sector was the second fastest growing sector in the world and in fact, grew faster than the global economy for the eighth successive year.
Looking at the current situation (mid-March 2020), the impact of Covid-19 to the travel and tourism industry will not be minuscule. UNCTAD estimated a preliminary downside scenario of $2 trillion shortfall in global income with a $US220 billion hit to developing countries.
At the moment, we can see global travel already being severely restricted and we may see more restriction in the weeks to come. This is not only an international dilemma. Covid-19 is also restricting domestic tourist activities. A spiraling domino effect looks probable - we may see higher unemployment, reduced consumer spending, weaker business confidence and reduced manufacturing activities to intensify even more.