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Updated: 16th March 2020

Predicting the Global Impact of COVID-19

As the deadly Coronavirus sweeps China, millions of people across the country are under lockdown in an effort to halt the spread of the disease. The total number of individuals confirmed to be infected is edging close to the 100,000 mark, with close to 3,000 individuals having already lost their life as a result of the virus.

As the virus begins to spread into Europe and the Middle East, fears that this could become a global pandemic are growing.

Away from the devastating loss of human life, business is also being disrupted not only in China, but across the world.

How are businesses being affected?

China is hugely important to the global economy with an estimated 5 million companies, including major corporations as well countless SMEs, relying on Chinese suppliers for raw materials, components, and finished products.

Close to the source of the outbreak, the impact on businesses has been monumental with swathes of the Chinese economy grinding to a halt as retailers close their doors and factories unable to operate. With workers under restricted movement, and many unable to return from the Lunar New Year celebrations with flights grounded, output at factories across the country has plummeted.

This is hurting both supply and demand in the Far East. The luxury goods market has already been negatively impacted with Burberry claiming the outbreak has hit their Hong Kong sales more than last year’s anti-government protests, while Apple - who attribute 16% of their sales to China - have warned that they will fall short of key financial targets in light of the ongoing crisis.

Problems are being felt globally

However, in human as well as business terms, this is much more than a China-only issue. Away from the source of the outbreak, businesses across the world – including the UK – have also been left reeling as global supply chains are disrupted. Many Chinese suppliers are closed or working at reduced capacity, severely restricting the inbound supply of parts and components affecting wholesalers and retailers across the world.

In the UK, JCB have already begun to scale back working hours and remove overtime at its Staffordshire plants amid a shortage of the components needed to make the yellow diggers. Countless other companies are undoubtedly monitoring the situation and assessing their options and preparing for delays.

European stock markets continue to suffer losses with the FTSE index trading at a one year low having over £100bn of value wiped out, while in New York, the major markets closed at their lowest level in over two years this week.

Travel companies are currently bearing the brunt of losses – both TUI and EasyJet have registered 3% falls with United Airlines falling 5.2%– however, businesses operating across a wide variety of sectors are feeling the pressure building.

Diageo – the company behind Smirnoff, Guinness, and Baileys – have predicted the Coronavirus crisis will impact net sales by between £225m to £325m, translating to a £140m to £200m hit to its operating profits.

"Viewed by some as a potential ‘Black Swan’ event, there are real fears the Coronavirus outbreak has the potential to derail the global economy."

Uncertainty is unsettling businesses

Viewed by some as a potential ‘Black Swan’ event, there are real fears the Coronavirus outbreak has the potential to derail the global economy. Estimations on how long the disruptions could last vary wildly, and the true impact on the economy - should the outbreak continue to spread and current restrictions on manufacturers, businesses, and individuals remain in place - may not be fully known for some time.

Even when restrictions are lifted and factory production finally resumes, it is likely to take some time before assembly lines are functioning at previous levels and for the back-log of orders to be manufactured and shipped. This uncertainty threatens to have a long-lasting impact on businesses across the world as they wait for the supply chain to be replenished. Long-term, price increases cannot be ruled out as factories attempt to recoup the losses suffered during the enforced shut down period.

A return to ‘normality’ may unfortunately be too late for many, both in China and across the world. The long-term effect of enforced factory closures could be enough to bring some manufacturers in China to their knees placing them at real risk of bankruptcy.

The ripple effect this could have on companies across the world cannot be overstated. This will not only affect the logistics of sourcing products going forwards while also driving up costs as demand outstrips supply, but it could also have a devastating financial impact on companies left out of pocket for items which may now never materialise.

An uncertain future

While uncertainty prevails, one thing is clear – it looks set to be a challenging few months for a whole host of businesses who have found themselves unwillingly caught up in the crisis in China. For companies already experiencing problems, or those fearing they may soon encounter issues, it is vital that they take action now by enlisting the help of a business advisory specialist to discuss the available options and ensure their company is best placed to withstand any potential fallout.

If your business is experiencing a downturn due to the escalating coronavirus crisis, call our dedicated helpline on 0333 009 6851 for immediate help and advice on navigating the situation including expert guidance on arranging a Time to Pay agreement.

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