The human and economic devastation caused by the global COVID-19 pandemic is unprecedented and difficult to imagine. It has affected more than 5 million people all over the world and already killed more than 339K people. In the US alone, more than 96K people have died.
The sufferings and hardships of people the world over continue unabated, even as its full impact is being assessed, understood and assimilated into our collective ecosystem. But the priority now, and rightly so, is the full containment and the simultaneous development of appropriate vaccine and medications to prevent the spread of this deadly disease.
The economic impact of the deadly disease has been jaw dropping. According to data released by the US Bureau of Economic Analysis (BEA), the US GDP shrank by a mind boggling annual rate of 4.8% in the first quarter of this year. Over 38 million people have filed for unemployment claims and the numbers are likely to only go up.
Travel and hospitality industry – Airlines, hotels, restaurants, rental car industry are among the worst hit sectors of the economy. Not to mention the travails of millions of small businesses that live on daily incomes. Many big name retailers have already filed for bankruptcy with multiple store closures.
Impact on Europe and rest of the World
In Europe the scenario is no better, with Italy, Spain, France and UK facing the brunt and suffering huge losses. The European Commission expects the EU economy to shrink by 7.5% in 2020 — far worse than the 2009 contraction of around 4.5%.
In Asia, China, Japan and India too have faced severe economic reversals. The plight of other smaller economies around the world has been equally dismal. So, all in all, the deadly virus that emanated from Wuhan in China, has inflicted an exorbitant toll on human civilization, confining them in their own homes in what is being euphemistically called home shelter.
The silver lining though, is that after a prolonged lockdown, the US and other governments are planning to reopen their respective economies in a phased manner. This will breathe new life into global trade and economy. But people will still be required to take precautions and wear masks when venturing out, something experts believe we may have to for a long time to come.
Even as the economies are opening up, it may not be business as usual, at least in the near term. Tourism, travel and hospitality industries may continue to face headwinds. Many people will continue to play safe and may not be inclined to travel unless absolutely required. This will significantly delay the recovery of these sectors to pre-pandemic levels. This in turn could adversely impact the broader economy. This may not bring cheer to economies that depend heavily on these sectors for sustenance.
According to the European Parliament, travel, tourism and businesses that depend on them contributed 10.3% of EU’s GDP and employed 11.7% or approximately 27.3 million workers in 2018. Given the dependence on travel and tourism, this may not be good news for Europe.
In the USA, travel and tourism industry’s contribution to the GDP in 2018 was 7.8% at US$ 1.87 trillion. However, the sector‘s share of GDP has gradually declined from 1999 to 2018. In the case of US, while the impact will still be significant, it may not be able to negate a swift recovery powered by federal financial support such as the CARES Act etc. From this perspective, the impact to US economy may not be as profound as felt by Europe.
In China, per data published by tradingeconomics.com, revenue from tourism accounted for about 11% of GDP in 2018 amounting to US$ 836 billion (1 CNY = 0.14 USD, May 2020). Bulk of the travelers came from Hong Kong, Macau, Taiwan and South Korea. The post pandemic travel to China will be greatly reduced thus impacting China’s overall GDP resurgence.
According to the World Travel and Tourism, the industry generated US$ 240 billion or 9.2% of India’s GDP in 2018 and supported 42.673 million jobs which is 8.1% of its total employment. While the impact to a post pandemic economy in India will be significant, it would be significantly less than that experienced by China and European Union.
It will be fair to assume that the speed and depth of post pandemic recovery will be at different in different countries. In the case of China, it may be a saga of struggle against multiple challenges. Apart from a weak travel and tourism sector, the country faces potential threat of flight of capital and relocation of key industries to other ‘friendlier’ countries. Souring trade relations with its biggest trading partner, the US, will also be a key factor that could swiftly turn into a tipping point.
Whichever way we look at it, the expected slow recovery of travel and tourism industries will significantly dampen global economic recovery, albeit, the impact on some countries will be more profound than others.
This piece is certainly not a pontification on the health of the global economy based on the fortunes of a single sector of the broader economy. That would be the equivalent of reading the crystal ball. But it nevertheless gives us credible insights into what may be in store for us on the path to global recovery. More importantly, this piece is also not an elegy to a woeful future ahead for us.
But most definitely, there are hard lessons for the world to be learnt. The pandemic, all said and done, appears to be an equal opportunity destroyer of economies and has forced a global reordering of economic fortunes of human civilization as we know and understand it today.
Most leading economies have been bought to their knees so quickly and so unexpectedly that most of us don’t seem to have understood what has hit us, economically speaking. Who knows, it is probable that the pandemic is an early indicator of nature’s way of hitting the reset button – to a global economic order that seems to propitiate an unending consumptive appetite.