The year 2020 has seen an
unprecedented crisis in the form of coronavirus (COVID-19) and has affected the
globe. It all started in Wuhan, a central city in China, where in November 2019
the first case of COVID-19 was reported. He et al. (2020)
reported in their study about the progress of COVID in China.
It was on 30 January 2020 that
the World Health Organization (WHO) issued its first global warning on
COVID-19. However, it was on 11 March 2020 that the WHO declared COVID-19 as a
pandemic; by that time, the virus had spread over France, Germany, United
Kingdom, Spain, Italy and the USA. By 10 March 2020, there were 119,075 cases
across the globe (https://www.worldometers.info/coronavirus/coronavirus-cases/).
The outbreak, which started in
China, was spreading its base to Europe and the USA. The economic impact of the
COVID crisis was showing across the globe, and in early research in China, Duan
et al. (2020)
showed that small- and medium-sized industries in China had severely been
affected by the crisis because there was a sharp decline in consumption; these
industries played a very critical role in the Chines economy. This could
further derail the economy and have an impact on the banking system because
companies and households were expected to default in loan obligations. Further,
the stability of the banking system could have also been affected.
An early study done by The
Economist through a report titled ‘Spread and stutter’ (2020)
emphasized that COVID-19 will be a grave threat to global markets. In another
report by The Economist, it was predicted that the fall in GDP of
the USA and Europe would be near 2% and thus all the stock markets were in the
grip of fear.
Even though stock markets always
face a degree of uncertainty, COVID-19 crisis can be referred to as a Black
swan event that was not anticipated. Black swan events, such as grave terrorist
attacks and epidemics, lead to panic among investors and the immediate response
is panic selling.
However, in contrast with a
terrorist attack, this COVID-19 crisis is unique because generally a terrorist
attack is more country-specific and it does not affect the consumption pattern
in other countries. In recent years, epidemics of this type occurred in Congo
where there was an Ebola outbreak and also the spread of Zika virus.
Scientists have identified the
current COVID-19 disease to a virus family known as coronaviruses, which
includes both the Middle East respiratory syndrome (MERS) and severe acute
respiratory syndrome (SARS) viruses. According to the Centre of Disease Control
and Prevention (CDC), symptoms of COVID-19 occur as quick as two days or as
long as 14 days, after exposure or contact with an already affected person. The
disease is thus highly infectious, and it is also difficult to confirm and
control it in the early stages.