Source:
RT News
As
countries close their borders to contain the corona virus 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.
“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.
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