Several countries are either working on or implementing plans to reopen their economies after the COVID-19 lockdowns. However, we will be feeling the economic consequences for quite some time.
Over the last month, there has been a myriad of different policies that governments have undertaken. And each of them can have unexpected results that can shock the markets.
So far, there’s been plenty of attention on the businesses that are obviously being affected.
This mainly refers to the ones forced to close, such as hospitality (bars, restaurants, hotels) and travel (airlines, tour operators).
On the flip side, online businesses have seen a surge in business. These include Amazon, gaming platforms, and a record number of new subscriptions for Netflix.
The Unexpected Gets You
We could consider the kind of businesses getting attention as the ‘front line’ economic casualties of the war on COVID-19.
However, there are knock-on effects from those closures that we may not be considering. These can cause unpleasant surprises, especially when combined with hasty or politically-motivated government policy.
The sudden excursion of oil into negative territory might be a good example. It caught many traders completely by surprise, leading some major investment houses to lose millions of dollars.
Demand for crude had been expected to drop and, therefore, lower the price. This would mean that storage facilities would start filling. But, on top of that, Saudi Arabia increased production to produce a political end.
So, in light of that. what other situations like that could be lurking in the turmoil of the markets? What else could we be ignoring because of the near blanket coverage of the pandemic?
It’s the Little Signs
Earnings season is well underway, and a worrying trend among European companies has started to appear. Many CEOs are noting that they are having supply-chain problems.
This was already an issue in February, as China’s production shut down due to the virus spread.
Companies did not have time to sort that out before governments shut them down. Now, some are unable to restart production due to a lack of supplies, as not all factories are in the condition to start production.
Despite governments giving assurances that cargo wouldn’t be affected, there has been a massive decrease in the number of orders for container shipping around the world.
Many ports were unable to operate due to the lockdown, meaning cargo has not been forwarded to recipients. If the cargo is not delivered, payment is not released. And this puts further strain on companies.
People Are Important
It’s not just cargo; migrant workers are having trouble getting to their usual places of employment due to travel restrictions. This is starting to worry food producers, who are lacking manpower during planting season and might have smaller crops later. The knock-on effect might be food cost inflation in the winter.
Another unexpected aspect is the effect on the healthcare industry, setting aside more lucrative medical procedures to be better ready to deal with the pandemic.
The largest medical test company in the world, Quest Diagnostics, reported that even with the drive to ramp up COVID-19 testing, their performed tests fell 40% in the first quarter.
Healthcare companies are among the most severely impacted by the outbreak.