Business, Education

COVID-19 is sickening not only people but also markets – the impact of the pandemic on the financial sector

Everyone describes the coronavirus pandemic as a humanitarian crisis, but we should also focus on its effects on the markets. The worldwide lockdown forced authorities to close economies for weeks and even months, which caused hardship for industries and even populations in many cases. With over 24 million cases confirmed by the end of the summer, the virus did not only take over 800.000 lives but also mumbled millions of businesses. At this point, there are still many more epidemiological measures to take because the pandemic is as dangerous as it has been at its beginning. 

The countermeasures, authorities worldwide had to adopt to contain its spread, stopped the economies and markets. The world is facing an unfamiliar scenario in which countries must determine if they can afford to prolong the lockdown or restart their economies. Financial institutions analyze the pandemic’s impact on various sectors of the financial market and rely on the obtained data to provide them with a solution. Banks have followed the example of alternative funding institutions and accelerated their digital transformation to meet their clients’ needs. New approaches are needed to monitor the effects of the crisis and mitigate the loss.

The economic damage is higher daily 

The damage the COVID-19 crisis brought to the financial world is more visible daily. Forecasting companies and scenario developers are predicting contradictions in the global GDP. Only in the euro sector, it registered -3.6% during the first quarter of the year. The severity of the damage varies from a country to another because the factors that influence economies are different. For the second quarter, the GDP in the eurozone is expected to be -13% because the countries were under complete lockdown. As some countries remove the restrictions, it’s anticipated that the worldwide economy will recover slowly and Europe will register a GDP contraction of -8.7% at the end of the year. 

The USA faced one of the largest unemployment waves in its history during the COVID-19 pandemic. During the first quarter, the GDP contraction reached -5, and it’s predicted the overall 2020 contraction to reach -6.5%. 

Forecasting companies can predict a single scenario to follow this situation, including a complex recession and a period of recovery that will differ according to the world region. 

The impact of the pandemic thus far

Everyone wants to see the coronavirus contained, but until the medical world can find a way to do it, many markets remain vulnerable to its effects. The financial industry has registered some bright spots because countries worldwide registered an increased demand for medical products, especially virus tests and protective equipment to prevent the virus spread. 

But the finance market has also registered dark spots because during the lockdown, the earnings have weakened, and the population is in desperate need of resources. Airlines have also reported an unprecedented level of canceling with flight restrictions and people canceling both domestic and international flights. Authorities have taken all measures to ensure as many people as possible remain uninfected and safe, so they restricted travel. To slow down the virus’s spread, they encourage individuals to practice social distancing for the present and the next months. 

What is the future of the financial market?

With the pandemic’s impact so extensive, what does it mean for investors and people in need of loans? For investors and banks, it means they need to look for strategies that benefit from volatile markets. With the virus still sickening millions of people daily, its effects remain uncertain for the financial world. In times when volatility is expected, businesses should use strategies that enhance returns, even if the market shifts violently up or down. 

Investors must consult with financial experts to ensure they don’t panic and make decisions based on their FOMO (fear of missing out) or FOLE (fear of losing everything). Everyone should try to remain patient and make decisions based on facts, not emotions. For businesses, volatility can offer opportunities, but the secret is to use techniques that allow them to increase profit in volatile markets regardless of the trend. 

At this point, the effect in the USA, Canada, and Europe remains unknown. Still, financial experts expect their economies to receive a hard blow, businesses to lose clients and individuals to lose their jobs. It’s predicted people will rely on personal loans and other financial aids to pay for expenses in this context. 

Drivers shaping the future of finance after the pandemic

Coronavirus has accelerated the need for businesses to digitize, and whatever the outcome of the crisis will be, financial companies will learn some valuable lessons because this situation reveals what their clients want, how they can stay competitive in an odd market, and what their business resilience is. It’s expected the following market drivers to influence the future of the financial market. 

Economics – at present, all financial entities practice low rates for extended periods because, in many cases, national authorities require it. They also experience an increase in bad debt because people don’t afford to pay their loans with reduced business activity. The outcome is a long recovery for the financial market that will impact its resilience and lay the foundation for business changes. 

Consumers – changing customer habits impact businesses across all markets. Companies and individuals are under financial pressure, and in some areas, this may accelerate stress-driven decisions.  

Operating-models – companies that experience a digital deficit have to bring adjustments to their business models, learn to work remotely, and find ways to improve their efficiency with their workers away from offices. 

Purpose – surprisingly, even if we live in the digital age, few companies are ready to accept digital transformation. To face the pandemic’s effect, they must rethink their external and internal strategies, find a new mission and build meaningfulness, transparency, and sustainability to attract stakeholders. 

The financial market is facing a new reality. People’s ability to purchase products has virtually disappeared overnight, and the industry is evolving in uncharted territory. 

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