Effects Of Coronavirus (COVID-19) Pandemic On The European Financial Markets

CORONAVIRUS & EUROPEAN FINANCIAL MARKETS

Europe, one of the seven continents on planet earth, encircles some of the high gears when it comes to the economy of the world. With a landmass that encircles forty-four (44) countries of the world, and a population of over seven hundred and forty million (740,000,000) people, Europe is considered to be the most productive of continents on the planet today, and this is not an honorary title. It is as a matter of fact, and a clearly deserved position, as one would come to discover.

Industrialization started from the shores of the European continent, and this has made them very notable when it comes to the world economy. The continent encircles some of the great and famous countries of the world, such as Germany, France, Italy, and the United Kingdom.

THE EUROPEAN ECONOMY

Europe is responsible for about twenty-two trillion dollars (22,000,000,000), which is about 16.3% of the world economy.

Like every great economy, the European economy faces a prospective deteriorating decline because of the global Coronavirus pandemic. The pandemic, which takes root from Wuhan, China, has spread almost all across the globe in less than three months of its outbreak. The coronavirus disaster has caused a lot of distortions in the financial models and economies of the world. 

The world was simply not prepared for this disease, and though government agencies across the globe are trying to manage the virus carefully, it is fast-growing. If not stopped soon, the aftermath of this virus would be worse than that of World War II. The coronavirus, which spreads almost unnoticeable to a large extent, has grounded world economic activities and kept nations at a standstill.

CASUALTIES AS IT STANDS

As of 7 am, Sunday 22nd March 2020, at least 311,988 people have tested positive for the virus all across the world and at least 13,407 people have died of the illness. One thing about the world economy is that, it is not just about the number of people infected (or dead) at the moment, it is more about the impact of those people’s infection on the basic unit of the financial world.

To make this simple, those who are dead as a result of the COVID-19 right now are over 13,000. Imagine those thirteen thousand people working in a major automobile assembling plant in any European country, like Germany, their deaths at an instance stop their part of the automobile assembling process. Also, if those 13,000 workers die in a factory at the same time (or at close time intervals just like the COVID-19 virus does), even if they’re all not part of the core of the automobile assembly process in that plant, in no small extent, production will reduce in that factory, and a single day of production reduction means lesser and lesser income for the business owner. 

Even if the business still runs fine after this trauma, after some time the company may not be able to afford to pay some workers anymore, and so, those workers are laid off. When the disaster finally ends, and everyone can come back to work, the gap created by the void of those thirteen thousand people may become impossible to fill eventually, and sometimes this can cause a business to fold up.

MEASURES ARE BEING TAKEN TO CURTAIL THE SPREAD

As a means of trying to contain and accurately manage this disease outbreak, many governments have declared a lockdown on activities in their countries. Italy, which has the highest number of infections in Europe, has since declared a state of emergency in its states.

All these seem to have started to produce a dent on the financial markets of the euro-zone and, by extension, the world. The European Union has shut its borders, and this means there will be no exports from Europe for as long as this issue remains unresolved. This implies that all the countries that depend on supplies from Germany (or France, or Italy or the United Kingdom or any country in Europe) to run the affairs of their countries are temporarily crippled. And this means there will be no income from exports for any country within Europe for as long as this disease outbreak lasts.

The fears of the coronavirus impact on the global economy have rocked markets worldwide thereby plunging stock prices and bond yields.

CASE STUDY OF SOME EUROPEAN NATIONS

In order to fully understand the effects of this raging virus on the financial markets of Europe, it would be helpful to look at the financial backbones of Europe and see how they are doing in the time of this crisis. We will examine what their economic situations used to look like, their major sources of revenue generation, and the effect of the coronavirus pandemic on their financial systems.

The strongest economies in Europe are:

  •    Germany, with a GDP of US$ 3.677 trillion.
  •     United Kingdom, with a GDP of US$ 2.622 trillion.
  •     France, with a GDP of US$ 2.538 trillion.
  •    Italy, with a GDP of US$ 1.935 trillion.

 

GERMANY

Germany, which is the strongest economy in Europe, is the founding nation of the European Union and also the fourth largest economy in the world by GDP. Germany possesses a very strong economic model which justifies its role as the strongest nation in Europe economically. German financial markets thrive on a number of factors which include:

Diverse but Uniform Spread of Industry

Germany is mainly known all across the globe for their manufacturing prowess. The German economy spread across industries such as automobile industries, chemical production industries, metallic product plants, machine tools producing industries, pharmaceuticals, and textiles.

Largest Export Market in Europe

Because of the heavy presence of industrial activities in Germany, the country exports a lot of its products all around the world. Countries such as the United States of America (USA), France, the United Kingdom, China, the Netherlands, Belgium, Czech Republic, Sweden, Hungary, Italy, Austria, Switzerland, and Poland benefit from Germany’s large export reach, and this has made Germany attain a very notable height as world’s second-largest export market.

Germany makes about $1.5trillion from the export of its automotive products yearly (products such as motor vehicles and their spare parts, and other transport mechanisms).

Large Importation Scheme

Germany, though has a lot of the leading industrial brands in the world, does not produce all it needs to run its economy smoothly, and thus depends on goods imported from other countries of the world to balance up with their exports and locally produced products.

Germany imports products like electronic equipment, medical equipment, technical equipment, vehicles and vehicle parts, crude petroleum, refined petroleum, agricultural produce and foodstuff. The country spends about $1.2 trillion on imported goods yearly.

The German economy has its own challenges as well, such as low labor force, which is an up-stem of the challenge of low population growth. The German economy was to a very considerable extent stable before the outbreak of the Coronavirus.

What Covid-19 means for the German economy and by extension, the largest economy of Europe

For an economy that depends to a very large extent on exports to generate revenue for its successful running, the Coronavirus outbreak and the regulations of the government have made it almost impossible for Germany to make exports.

Movement restrictions within the German shores have also forced many companies to drastically reduce their working hours, as well as their labor force, which was a challenge even before the inception of this pandemic outbreak. This will in time lead to a drastic slowdown among the manufacturing industries of Germany, which will most likely result in a terrible recession that will be caused by the ban on importation at this trying time. Germany depends mainly on exports to run its economy; the restriction of movements, the shutdown of borders, the ban on exports in other countries of the world as a regulatory measure will take a toll on the German economic trend in the coming weeks.

It is to be noted that Germany has the largest economy in Europe, and so, a setback with the German economy can cause a major hitch back with the European financial market.

THE UNITED KINGDOM

The United Kingdom is the 80th biggest country in the world and has the 5th largest GDP in the world. The United Kingdom is the second most stable economy in Europe. The economic system for the United Kingdom thrives on:

Services

This is the largest economic sector of the United Kingdom as it spans a very wide range of service and skill oriented industries, some of which include food industries, the entertainment industry, finance industries et cetera. This sector of the United Kingdom’s economy depends majorly on human resources to run successfully.

Manufacturing

This encircles industries that produce industrial equipment such as automobiles, phones, et cetera. This sector is responsible for about 20% of the United Kingdom’s GDP.

Construction and tourism are other major sectors that bring a notable amount of income to the United Kingdom.

It is to be noted about the United Kingdom that the sectors which contribute to the running of the UK’s financial markets are majorly people-dependent. The advent of the coronavirus in the UK has forced the government to shut down its borders, and this means for as long as this pandemic shall last, there will be no revenue generated from Tourism in the UK. 

Construction and Manufacturing which are two other pillars that hold the UK’s economy together, are also slowed down as the government has as a containment measure of the COVID 19 virus put up a lot of work restrictions and so companies have to reduce the number of workers on site, production lead time is seriously deteriorated, and so to a noticeable extent, the United Kingdom’s income revenue from Manufacturing and construction at this time seriously dwindles. The same goes for the services sector which is the foundation upon which the United Kingdom’s economy is built. 

The United Kingdom already has over 6,000 confirmed cases of the COVID 19 menace, and the numbers are building up.

This prospective economic disaster to a large extent affects the collective economy of Europe in ways that are beyond imagining.

FRANCE

France is the third strongest economy in Europe with a GDP of US$ 2.583 trillion.

The French economy is lies on these major building blocks:

Tourism

France is a major player in the tourism industry as it is one of the most popular travel destinations of the world. France hosts over 80 million tourists yearly, this makes France the fifth country in the world based on revenue generated through tourism.

Manufacturing Sector

With a reputation as the fourth largest manufacturers of automobiles in the world, France generates a very sizable amount of its revenue from its manufacturing industries. France is not only into the manufacture of automobiles; the country is also into the aerospace sector.

Energy

Home to the largest utility company in the world, France generates a very sizable amount of its revenue from the proceeds of energy. The energy sector seems to be the largest building block of the French economy.

The COVID 19 outbreak has caused travel bans all over the world, and this means that France’s tourism revenue considerably reduces, if not stops, for as long as the virus lasts. In the bid to contain the virus, many manufacturing companies would not be able to meet up with their apt production rates on time, because of the movement restrictions as well as the social distancing preventive measure advised by health professionals. Even if France is able to by some miracle, meet up with target production rates in the best time possible, many countries of the world have shut down their borders, and that means there will be a serious constraint on exports for as long as this pandemic lasts.

All these factors add up to mean a not so bright future for the French economy if this virus’ menace lasts longer than this, it could cause a serious rupture in the Economy of Europe because as we are getting to discover, the countries that make up Europe are badly hit by this virus.

ITALY

Italy, one of the backbones of the European economy has suffered greatly at the hands of the COVID-19 menace. Italy has the highest number of cases in Europe and has almost lost control over the virus. The economy of Italy has faced a lot of deteriorating effects as a result of the COVID 19 pandemic outbreak.

Italy is the largest producer of Wine in Europe, because of the agricultural sector of its economy. However, since the inception and widespread of this virus in Italy, production has seriously reduced and exports are almost completely shut down.

Tourism also attracts a very sizable amount of revenue to the Italian economy, but nobody wants to go to Italy right now because of the seeming loss of control over the spread of the corona virus in the country. This has also put the tourism industry on a very stressful hold as far as the economy of Italy is concerned.

The summation of the effects of the coronavirus pandemic outbreak in Europe will take into account the effects on individual economies of the Euro-zone. We have tried to use the four strongest economies of Europe – Germany, the United Kingdom, France, and Italy – to come to the conclusions of this report. 

The coronavirus pandemic affects the European financial markets in the following ways:

The manufacturing Industry comes to a halt

As we have seen with the four strongest economies of the Euro-zone, Europe depends largely on the revenue generated from its manufacturing industries to run as a successful continent, but the COVID 19 pandemic and the containment measure of the government will most likely bring the European manufacturing industry to a complete standstill. This raises very serious concerns for a continent whose strongest countries depend largely on manufacturing to run.

In cases where manufacturing does not come to a complete standstill, manufacturing capacities are seriously deterred. This means for example, a company which produces 2000 units of tractors daily before the outbreak of the coronavirus will probably produce only about 800 units daily now. This is a very terrible financial situation for Europe if this saga does not end soon.

Export capacities reduction

Europe is a very industrial continent; hence, the continent is the pacesetter in the manufacture of automobiles and industrial machineries. If the COVID-19 pandemic does not end soon, the export market will face some serious issues. The issues will come up as they already are because factories are no longer producing as much as they used to; many countries of the world have shut their borders to prevent the transmission of the virus into their jurisdictions; the countries to which Europe export their products normally, may no longer be able to afford them because the financial mess created by coronavirus outbreak is a global one.

Tourism halts

Of all the revenue that comes to Europe, tourism also accounts for a sizable amount of revenue. Europe has some of the most famous tourist centers of the world, but amidst the fear of the coronavirus pandemic, tourism is the least anyone and anywhere is concerned about right now.

If this pandemic persists, the European economy and financial markets may not be able to recover from the effects of the coronavirus.

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