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Why the coronavirus can cause an economic downturn

The strong blow that the new coronavirus generated with its relentless advance around the planet has generated the forecast that a global crisis will appear, where it is expected that not only the profits of the companies will fall but that they will need the injection of new capital to face this unexpected fall. Most experts conclude that the slowdown is already manifesting itself in the most cyclical areas of the market, something that differs from the recession that occurred in 2008 and 2009, which took the entire market by surprise.

Another essential aspect for the effects that the crisis will produce is the economic measures that the governments of the different nations will adopt in front of the outbreak of the virus. In some places, drastic measures have already been taken, such as cutting interest rates to benefit companies and individuals so that they can pay off their debts. In this way, governments should cushion the fall generated by the coronavirus through fiscal expansion mechanisms, a very different issue from what we have been used to in recent times, although there is still no accurate picture of what the impact would be.

Why the coronavirus can cause an economic downturn

What can be suspected is that the health effects of the virus itself will be transitory: it will peak and then fall, although it is very difficult to predict the time frame in which this will happen. The side effect of the cocktail of various measures taken by politicians in different countries has created an economic impact on the whole planet that has not been seen since the oil crisis in the 1970s. This is especially so because there has been a total reconfiguration of the supply of goods and services and a sharp reduction in activities and consumption, which of course affected the tourism, events, gastronomy and leisure industry most strongly.

When the origin of the virus became known around the world and had its epicentre in China, it brought concern but it was believed that the chances of it causing a global recession were very slim. But its rapid spread and its continued presence in Europe as the new epicentre of the pandemic creates a worrying picture, as there are no forecasts as to how long the virus will last. 

China was the initial epicentre of the virus, but it moved to Europe – Italy and Spain mainly – and the number of nations with infected people is increasing every day. Cities, regions and even entire countries are being quarantined or socially isolated in an attempt to limit the transmission of the disease. 

This decline and in some cases curtailment of activities can put companies in a distressing situation, generating losses that will continue even after the crisis has passed. In addition, the personal economies and social consequences of this crisis will make it very difficult for many people to return to consumption quickly once the pandemic is stopped. The most vulnerable manufacturers will be seriously affected by the lack of human capital and the decrease or absence in some cases of exports and imports could produce a lack of goods for companies that will still have to pay wages and debts.

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