A Heat Map Analysis to understand the Economic Implications of COVID-19 Outbreak
Introduction
The COVID-19 is touted as one of the biggest economic crises of the present time. Many analysts believe that the economic immobilization caused can create larger havoc than the subprime crisis that happened a decade before.
However, it should be noted that once the compulsory economic shutdown will be suspended, not every industry will be impacted the same way. There will be industries, where the distress will continue, while others will revive shortly. Interestingly, there will also be industries, where new opportunities might emerge, thereby pushing ahead growth in the times to come.
Hence, we are creating a Heat Map to understand how various industries are exposed to the current crisis.
Aviation: COVID can entail a major impact on the aviation sector. Even before the lockdown, International air traffic dipped by 13% in February 2020. As per preliminary estimates by ICAO (International Civil Aviation Organization), in the 1st half of 2020, the global aviation industry can lose up to 58% of total seats, leading to a potential loss of around USD 112-135 billion.
Retail: Regular retail such as consumer durable, apparels, electronic items, etc. are facing the heat, as due to closure of malls & high street- sales have come to a halt. In most of the red-zone markets, shops have been closed, which has severely impacted trade. Even when the crisis will be over, footfalls will take time to revamp, as buyers will avoid crowded places.
Automobile: Due to disruptions in the supply chains, the auto sector started suffering since March. Indian automobile was already going through a periodic down cycle. Now as the manufacturing units have been shut down, the challenge is further aggravating. In March, sales dropped y/y by half. The future outlook will depend on the rate of economic recovery. If the economic slowdown will persist, it will continue to weigh on the sector.
Tourism & Hospitality: The hospitality industry is facing immediate repercussions after the COVID crisis, as there has been a complete ban on international & domestic travel. Earlier estimates suggest that global tourism & hospitality might lose up to 75 million jobs, proving to be nothing less than a nightmare. Even once the ban will be removed, the repercussion will continue as conferences, events, sporting activities, etc. are not going to take place for long.
Shipping: The shockwaves in the shipping industry was visible during January itself when COVID-19 break out in China. As the global trade flows are tied to China, it was natural that the crisis will start adversely impacting international shipping. As the disease started spreading to other parts of the globe, the downward pressure on the shipping industry further expanded.
Petroleum & Energy: As manufacturing, port activities, & logistics have come to a halt, demand for petroleum & energy will be muted in the times to come. As per Evaluate Energy, an energy analytics consultancy, by the middle of 2020, petroleum consumption might plunge to 64.8 million barrels per day. This is a significant dip when compared to the end of 2019 when the oil consumption was 101 million barrels per day. Petroleum prices around the world have tanked. The industry was already suffering from a crisis for a few years & it has been further aggravated by the COVID challenge.
Moderate Exposure
Agriculture & Animal Husbandry: Agriculture will have a limited impact emanating from the COVID crisis. Moreover, the govt. has kept agriculture activities from the purview of lockdown. However, as individuals will shy away from eating out & crowded places, consumptions of certain items especially dairy products & animal protein might lessen, thereby impacting the market.
Technology: Disruptions in the global supply chain will hurt hardware technologies. However, as most of the organizations are adopting Work from Home (WFH), there is a surge in demand for laptops & other electronic items. In the foreseeable future, the demand will continue to rise for numerous software services as well such as cloud-based technologies, analytics, & data management software.
Manufacturing: Due to the economic lockdown, manufacturing activities have dried up in most of the major economies in the world. This was also reflected in a sharp plunge in the PMI index in major economies in the world during February & March. However, most of the countries have announced generous fiscal packages that will help the sector afloat in the times to come. Moreover, once lockdown will be suspended normalcy is expected to be resumed. For instance, in China, the PMI index reached 50.1 in March after a record low of 40.3 in February.
Mining: Across the globe, major mining organizations are implementing quarantine & shutdown in activities as a part of lockdown measures to contain the spread of the disease. This is triggering uncertainty in the market. Moreover, disruptions in the global supply chain can adversely impact the industry.
Least Impact
Real Estate: Although transactions have hit hard during the lockdown, overall the impact of COVID will be limited on Indian Real Estate. This is also rooted in the fact that Indian Real Estate, especially the residential markets are mostly end-user driven with limited investor involvement. Likewise, healthy sentiments are prevailing in the Commercial Real Estate as demand is soaring. Although occupiers are deferring leasing decisions due to lockdown, the underlying sentiments are robust.
Telecommunication: The telecommunication alongside the Information Communication Technology sector is least correlated to the COVID crisis. Certain segments of ICT including video conferencing, e-meetings, webinars, and cloud-based services are poised to grow. Likewise, as individuals are working from home, downloads of video content, games, & apps will also rise significantly.
Pharmaceuticals: COVID-19 will have a limited impact on the Pharmaceutical industry. As an essential service medical stores are open throughout the world, which will delimit any supply-side disruptions in the pharmaceutical industry.
FMCG & Food Retail: As most of the convenience stores are open, daily use items & basic food retail won’t be affected to a great extent. Although due to distress purchase, certain items faced a sudden spike in demand thereby triggering a change in demand patterns.
Defense: The defense segment will be least impacted by the crisis. Likewise, there are numerous other industry verticals, which are witnessing a spurt in demand due to the COVID crisis. Industry segments such as e-commerce, Work From Home Software, etc. are going to see steady growth in the times to come due to behavioral changes brought in by the COVID crisis.
