- The reopening of economies might not lead to the needed increase in demand for services.
- There are a large number of unemployed in the West, due to coronaviurus.
- Some nations will default on their obligations in the near future, particularly certain EU member nations.
Currently there are over 3 million cases of coronavirus and over 211,000 dead around the globe. In the US there are over 1 million cases of the infected documented at present. Many nations are starting to reopen, including Italy. In the US some of the first states to reopen are Oklahoma and Georgia. However, many other states plan to open soon too, but with restrictions. The restrictions include wearing masks and people asked to be 6 feet apart. The US Guidelines on the reopening three phases here.
Even with businesses reopening around the world, demand for their product will drop. Even in restaurants, who wants to enjoy a meal with everyone in masks and six feet apart? Also, the capacity of the restaurant is reduced. Fewer can afford to go out, as many have been out of work. In Canada, during the first phase of the Canadian government rollout of financial help close to 7 million people applied out of a Canadian population of 37.5 million.
People who have heard the horrors of record earnings losses, unemployment, and so on during the quarantine will not buy something at the same rate as it was done before the crisis. People will think more about the hardships and tribulations of the crisis. So the planned volume of trade recovery can not be expected.
And millions of new unemployed will become a very heavy burden for the state and society, and the change in their consumer behavior will test the trade and consumer services sectors.
For now the aviation industry is taking a hit and aviation shares continue to drop, excluding the defense sector.
Many entrepreneurs in the sales and services sector immediately after the beginning of the acute phase of the crisis began to reduce staff and optimize their business. At the same time, almost all of them remained cautiously optimistic about the future, rightly believing that the pandemic would not be permanent.
However, those who hoped for a quick end and return to normalcy were not right. The customers won’t be there. We will have to cut back and cut back. And that realization will come. For the first couple of months after the restrictions are lifted, entrepreneurs will feel that the past is not coming back and that they need to optimize their business more. This means that there will be new bankruptcies and new unemployed people. Any partial recovery will be slow and will take years. And some will not be able to recover.
Next month will show that even with the gradual re-opening of businesses there will be no quick return to normal and not at any rate that people expected.
A majority of the politicians are getting their constituents excited about the re-opening, but challenges lay ahead and that is without the possibility of the second wave of the coronavirus this fall.
It is clear many states in the US will face large numbers of unemployment, which is likely to continue to increase by the summer months. The tourism industry is not going to rebound so easily. This means that the problem of unemployment will have to be solved somehow. Therefore, nations will have to extend government benefits (such as CERB in Canada) and also find ways to stimulate job creation. The construction and trades industries are booming and have been working throughout the coronavirus pandemic.
Another factor to consider is running budgets with deficits. Global economies are faced with the fact that at the same time almost all countries of the world are increasing budget expenditures. The build-up is explosive. The scale of money thrown into the economy is enormous. Stimulus packages have already led to budget deficits of several trillion dollars. And this is not the end, maybe not even the peak.
Why? Because money can be printed, but not indefinitely. It may not be so bad for those countries that have reserve funds. Some countries might have a decent package of state property and can be disposed of for cash. Also, oil is at all time low, there are US companies that already filed for Chapter 11 that are involved in oil in Texas.
It is highly likely that total sequestration of budget programs is what awaits a myriad of nations around the world. US President Donald Trump might be in tough spot, part of his supporters are in the defense sector. If, in fact, he is forced to sequester the military budget that would become a huge. Sequestration of defense increases occurred under former US President Barack Obama. Because it’s an election year in the US, there is no way Trump can do that without risking his reelection. However, there is a talk within the Pentagon of taking certain types of equipment out of circulation as unnecessary at this time. There is a chance certain states will have a tough time financially.
Some EU member nations will start defaulting on their obligations in the near future.
There are also possibilities of the artificial creation of conflicts. Iran for example is in a dire state economically, due to the coronavirus. Iran could start threatening the West again covertly, by again building up their nuclear arsenal. Such antics surely would immediately raise the price of oil. Another scenario could involve the Saudis fueling Shiite and Sunni conflict to create certain optics of additional instabilities in the Middle East, again to rise the price of crude. Even though their vision 2030 is to diversify their economic portfolio, at this time it depends on oil to function.
There is more to come in the upcoming months from artificial conflicts to depression in certain areas and defaults. It is a very challenging time for world economies and will continue to be so in the near future.