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What would a second wave of coronavirus mean for businesses?

business-articles What would a second wave of coronavirus mean for businesses?
Most parts of the world are finally starting to emerge from lockdown as the coronavirus pandemic shows signs of tapering off.

However, while businesses are reopening and busy adjusting to the new normal, health experts are already expressing their concerns about a second wave of infections.

But is a second wave inevitable? And what could it mean for businesses?

How likely is a second wave?

This is the trillion-dollar question, and given how much uncertainty surrounds the coronavirus outbreaks it's difficult to know for sure if we could be facing a second wave of infections.

However, given the fact that only a very small percentage of the overall global population will have been infected and developed antibodies there is a clear risk of the infection rate creeping up again now lockdown measures have eased.

We’ve already seen a worrying spike in cases in countries like the US, where the early easing of lockdowns has sent infection rates soaring to new highs.

Dr Adam Kucharski from the London School of Hygiene and Tropical Medicine warns.

‘The evidence is the vast majority of people are still susceptible. In essence, if we lift all measures, we're back to where we were in February. It's almost like starting from scratch again.’

There is also the worry that the coronavirus could re-emerge in the winter at the same time as seasonal flu cases begin to rise, something which could put significant strain on health resources.

Either way, should a second wave emerge most governments have warned they won’t hesitate to reintroduce lockdown measures, potentially cutting economic activity to the record lows witnessed in April.

The economic impact

It's hard to overstate what the potential economic ramifications of a coronavirus resurgence may be.

Even the threat of a second wave is likely to be detrimental to the global economy as it is likely to weaken consumer confidence and stifle business investment.

But a second wave itself could be the death knell for many businesses already struggling to stay afloat after being forced to close for months in response to mandatory lockdowns.

This, in turn, would lead to a massive surge in unemployment, placing even more strain on the economy as the uptick in unemployment leads to weaker wage growth and reduced consumer spending.

This is not to mention the other economic headwinds potentially facing countries this year.

Ratings agency S&P warns the risks to the UK economy are twofold due the possibility of both a coronavirus resurgence and a no-deal Brexit in the second half of 2020.

‘A second, bigger wave of (coronavirus) infections in autumn, then followed by a switch to WTO trade rules in January would be a perfect storm.’

In the US there is also the issue of an impending election, which could throw even more uncertainty into the mix.

What sectors will be hit hardest?

Much like with the initial outbreak, the sectors set to be hardest hit by a second wave of infections are likely to be the travel and hospitality industries, both of which will probably be the first sectors closed down if cases begin to creep higher again.

Even without a second wave, activity in these sectors is not expected to return to pre-pandemic levels until 2021 at the very earliest as social distancing measures greatly limit capacity. 

High-street retailers are also likely to be significantly damaged by a second wave as not only could non-essential stores be closed again, but consumer spending could also be hit by massive layoffs.   

Meanwhile, e-commerce and the tech sector are expected to enjoy another boom in the event of a second wave, with consumers confined indoors again and spending more time online.

But even online retailers could suffer if another lockdown has a negative impact on supply lines.

How could the currency market react?

If what we saw earlier in the year is anything to go by, it's pretty safe to assume that a second spike in coronavirus cases would also give rise to some considerable volatility in the currency market.

Back in March, as COVID-19 became a global pandemic, the reaction in currency markets was one of pandemonium, with swings of up to 6% seen in some currency pairings at the height of the chaos.

The US dollar was the undisputed darling of the currency market at this time, to the detriment of its more risk sensitive peers, as skittish investors flocked en masse to the safe-haven currency. It’s likely a similar trend could emerge as second wave concerns grow.

Given the risk of a second wave rocking currency markets again in the second half of 2020, businesses may want to start taking steps to protect their revenue by limiting their exposure to such volatility.

Our team are on hand if you would like to discuss your company’s international payments and the risk management solutions available to you.

If you have FX requirements we can help you maximise your returns and protect your profit. Get in touch with our team on [email protected] or call +44 (0) 20 7847 9400.
Currencies Direct

Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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