Cellular entity outbreak continues to divert my attention from our small bubble’s triumphs and dramas to larger economic consequences of the outrageously stupid and irresponsible world’s “economic shutdown”.
While IMF bureaucrats sooth old and frightened policy makers by illusionary promises of “V-shaped” recovery, their forecast of “3–5% GDP drop in 2020” seems more and more ridiculous, specially after latest continuation of the “shelter policy” in most USA states.
Let’s have a very brief look at several industries, affected by virus scare craze.
We start with “travel” (which among others includes hotels, airlines as well as passengers ground transportation), which, according to Google, is “accounted for 3.3 percent of the total global GDP in 2019” in direct contribution (indirectly it stays for 10.4 percent of the total GDP worldwide).
There’s a huge discrepancy in medias of how much this industry has been affected by virus but most estimates agree on that it was cut almost by halve internationally. Even in the case of “partial opening” till the end of the year, accumulated losses can’t be less that 30% compare to 2019. That industry alone already gives us about 1% of global GDP down-full.
Then we get to “restaurants”, which employ “more than 14.7 million people” or 10% of the overall US workforce and “represents almost 4% of the US GDP”. Worldwide the size of this industry is harder to estimate because in many countries it transacts in cash and can’t be fully accounted for. Conservatively, it is no less than 4% globally because in most parts of non-industrialised world it takes proportionally larger share of local GDP.
The consequences of “social distancing” for this industry is difficult to over-estimate. Optimistically speaking and taking in account “home delivery services” its size will shrink about 30% till the end of the year, which adds 1.2 percentage point to our grim count.
Now to the elephant in the room, which is “manufacturing”. “Manufacturing is an essential component of gross domestic product, which was $2.33 trillion in 2018, and drove 11.6% of U.S. economic output” (google). Worldwide estimates are higher and makes it about 15% of GDP.
We already known that Chinese industrial production fell almost 15% in March (since then it’s ‘recovered’ to 10%), Globally we can project internationally about 10% down-full by the result of this year as well, which gives us 1.5% of GDP reduction.
The ‘fun’ has only started, however. “The oil and gas drilling sector alone makes up around 3.8% of the global economy” (google). We all know how it goes. With an average price of about $56 (>50% of the present spot) during 2019 in 2020 this industry alone will take about 2% off the global GDP count.
After accounting for only four industries we are already looking at 5.7% (1% + 1.2% + 1.5% + 2%) in global GDP reduction.
Additionally, we have to take into consideration the Retail. This sector alone represents 31% of the world’s GDP! and is looking to at least 10% reduction in 2020, which is equal in our count an additional minus 3%.
We still haven’t mentioned Transportation / Logistic (8% of global GDP), Construction (13%) and Entertainments (including, Movie theaters and Film production, Live sports, Theme parks, Gambling) which constitutes 2.5% of the global GDP and is wiped out almost completely.
If two first industries will be reduced to only 10% each by the end of 2020 we are now looking at additional minus 4.6% and at 10.3% world-wide drop (about 8 trillion dollars).
Honestly, I do not even know how IMF ‘analysts’ still manage to cloud so many decision makers’ minds by their ‘magical’ 5%. As Francisco Goya once remarked ‘El sueño de la razón produce monstruos’ (The Sleep of Reason Produces Monsters).
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