As countries close their borders to contain the coronavirus outbreak, the biggest disaster faced by businesses big and small is the shutdown of the global economy.
While Covid-19 has rattled financial markets, the real economy faces even worse problems, as many companies will be unable to survive without a government lifeline.
Which firms will be most seriously hit?
Social distancing is one of the first and, apparently, most effective containment measures the countries have in their arsenal. However, the practice could bury small and medium-sized businesses, clearing the path for big corporations that will enjoy the support of governments and banks.
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“Small and medium enterprises are the backbone of any economy, and they’re also likely to be most affected by social distancing,” Professor of Financial Systems Resilience at Bournemouth University, Christopher A. Hartwell, told RT. “They just don’t have the capabilities of an Amazon to keep delivering; they rely on face-to-face interactions, and so any prolonged lockdown can be devastating.”
Those involved in the tourism and entertainment industries, as well as the service industry, could also have tough times due to lockdowns and quarantine measures, according to Sergey Kopylov, a junior partner at consulting company BSC. He says non-essential sectors like the auto industry will probably not get bailed out and will have to cut production.
“Those who are critically dependent on Chinese components will face [the] most serious problems,” Kopylov said. He explained that tech producers and assemblers would be the most vulnerable, as most parts for their products are exported from China, which has not yet fully recovered after the production pause caused by Covid-19.
Who can count on government help?
Airlines were the first to feel the devastating impact of the coronavirus, as they had to dramatically cut capacity amid low demand and border closures. Analysts believe they will be the first in line to receive financial aid.
Airline companies can easily face bankruptcies, which can eventually hamper already strained trade and supply chains, Kopylov believes, while others think that airlines shouldn’t enjoy so much support. According to Professor Christopher A. Hartwell, government bailout is “a disastrous idea,” as the carriers could easily exploit the funds for their own benefit.
“Since deregulation in the 1970s under US President Jimmy Carter... airlines have gone through waves of high competition and improvement in service which then gets crushed under a bailout and some form of re-regulation, which leads to worse service and oligopolistic pricing,” he wrote.
Governments will have to support other critical sectors, such as agriculture, to prevent food shortages. While not all countries, especially those dependent on tourism like Cyprus or Spain, can afford to fund them, they can at least offer tax and credit payment holidays, Kopylov said.