Question

Given the Covid19 crisis that has impacted global economies on an unprecedented scale. The level of disruption is likely to persist as government around the world is likely to implement policies at all level to arrest the uncertainties. Some of the extreme policy implemented include utilizing of sovereign reserves of last resort, reduced interest rate, and quantitative easing to mitigate job losses.

In 500 words, evaluate the situation above and suggest how corporations can effectively survive in the survival of the fittest.

Answer 1

SOLUTION :

Early indications of COVID-19’s impact on the Chinese economy are worse than initially forecast. Surveys of China’s manufacturing and services sector plunged to record lows in February, automobile sales sank a record 80 percent, and China’s exports fell 17.2 percentin January and February. The official data confirmed a widespread slowdown in economic activity foreshadowed in low pollution levels and depressed shipping traffic, among other informal barometers. Analysts have sharply revised down estimates of Chinese growth, with many now predicting a drop in first quarter GDP, the first contraction since China began reporting quarterly data in 1992. As COVID-19 spreads, China’s economic recovery will be challenged as demand from other countries drops as they cope with the virus.Among major economies outside of China, the OECD forecaststhe largest downward growth revisions in countries deeply interconnected to China, especially South Korea, Australia, and Japan. Major European economies will experience dislocations as the virus spreads and countries adopt restrictive responses that curb manufacturing activity at regional hubs, including in Northern Italy. As a result of depressed activity, the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.The International Air Transport Association warns that COVID-19 could cost global air carriers between $63 billion and $113 billion in revenue in 2020, and the international film market could lose over $5 billion in lower box office sales. Similarly, shares of major hotel companies haveplummeted in the last few weeks, and entertainment giants like Disney expect a significant blow to revenues. Restaurants, sporting events, and other services will also face significant disruption. Industries less reliant on high social interaction, such as agriculture, will be comparatively less vulnerable but will still face challenges as demand wavers.the Organization of the Petroleum Exporting Countries (OPEC) and a few other major oil producers met to discuss an additional cut of 1.5 million barrels per day through the end of June in response to the outbreak. When the agreement collapsed, Saudi Arabia cut prices and lifted output, ostensibly to harm Russia for refusing to agree to production cuts. Following the Saudi decision, Brent Crude fell more than 20 percent , the sharpest one-day drop since 1991, with analysts predicting further declines ahead. The damage from the Saudi-Russian price war sends an unsettling signal to markets hungry for a coordinated policy response to the epidemic, especially considering Saudi Arabia’s current role as G20 president.We expect some pharma companies to benefit and others to face moderate headwinds, but we don't expect many rating actions as a result of COVID-19. We expect drugmakers whose products are effective against COVID-19 to benefit financially. We also expect greater investment in pandemic prevention to help the industry in coming years.The impact on U.S. health care on operating performance--and ultimately on credit ratings--has not yet peaked, and the financial impact is likely greater than what we forecast. Guidance updates in the upcoming first-quarter earnings announcements will be key to getting greater visibility on the depth of impact on various health care subsectors. Health care has one of the highest concentrations of 'B' ratings across all industries, at 60%. With the disruption to business caused by COVID-19, this group of companies has seen the bulk of the negative rating actions in healthcare.