The Coronavirus Pandemic Will Cause a Global Recession And It's Not All Bad News
The recession has already begun, we are now in a phase where the global economy is in a state of shock with the coronavirus pandemic momentarily grinding the whole global economy to a halt. And the results can be devastating!
The Bullwhip Effect — The Global Economy Is An Object In Motion
While doing my Master’s degree in Industrial Engineering, a term that I would often come across would be the Bullwhip Effect!
To explain with a very practical example — say a manufacturer A produces 1,000 units a month, and the manufacturer sources 10,000 sub-components every month from supplier A.
Now, the end consumers for manufacturer A, put together, order on average, 1,500 units a month.
This means that the manufacturer A has employees, sub-components, and finances (debt, etc.) just enough to continue producing month-after-month with a small amount of variability. Any drastic change in orders from the consumers, such as a global coronavirus pandemic, will cause a chain reaction.
As manufacturers anticipate less demand from end consumers, they source less components, freeze hiring, and this chain continues to the sub-component manufacturer, all the way to the source, causing a bullwhip effect.
In short — a delayed chain reaction causing a massive disruption to the connected global supply chain.
The Travel & Hospitality Industry — The First Casualties Of The Global Collapse
In an effort to contain the global coronavirus pandemic, authorities and governments across the world have scrambled to close borders, reduce travel and ensure social distancing and isolation to avoid the spread of the disease.
Boeing’s stock have crashed by almost 60% from its peak in March of last year. Carnival Cruise has lost close to 70% of its value!
Restaurants, tour operators, and retail shops have all taken a massive hit with little to zero business!
It’s Only a Matter Of Time Before Every Industry Is Affected
We are now in a phase where businesses are unsure of the future ahead. As the demand for goods and services reduce due to fear and panic, businesses are forced to delay decisions, and spend only when necessary.
But a global panic selloff is inevitable. Layoffs, and a massive cut in the consumers spending power, will bring in a cascading effect to the whole global economy.
Companies without a sound business model and incurring heavy losses, relying on investor money such as WeWork could face bankruptcy!
More than 35% of small businesses with already thin profit margins could be wiped out and the bigger ones will be bailed out with the taxpayers’ money.
As a Jobseeker
If you’re a job seeker, either a recent graduate or about to graduate, know that almost every business is worried about the future of their company and the anticipated fall in business.
Hiring will be on a freeze for the foreseeable future and the best you can do is extend your runway and gain skills.
Stay open to smaller projects or short term contracts which are common during an economic crisis.
As a Startup Founder
As a startup founder, your first thought should be on how to minimize expenses and maximizing your startup’s runway as much as possible to get through with the slump.
Funding will be tough, business may take a hit, but unlike bigger companies, startups can stay lean and survive through the tough times.
As an Investor
Market sentiment can be bad, businesses in your portfolio that may even have a sound business plan could face an uncertain future, such as the ones in the travel and hospitality industry.
But if thought with a clear mind, without emotion or panic, this could be the best opportunity to invest!
Startups that are born during tough times usually turn out to do really well after the recession. Example, Airbnb, Uber, etc., were all born during the 2008 Recession.
Startups can now be invested in at “bargain” amounts.
The Outlook Ahead
The next few weeks and months ahead could be some of the toughest times ahead. Wise financial planning, saving for the future, staying lean on your expenditures will be the deciding factor for you to come out of this global recession without a huge toll on your personal savings and well being.
For every bull market there is a bear market.
This bear market, like every other before, will pass. And on the bright side, this could be a good opportunity to take a pause, and rethink for your future ahead!