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Economic pain of Covid-19 may prove worse than physical effects

Richard Curran


Outbreak: Emergenccy workers at the coronavirus origin site in Wuhan, China. It has since spread around the world. Photo: AFP via Getty Images

Outbreak: Emergenccy workers at the coronavirus origin site in Wuhan, China. It has since spread around the world. Photo: AFP via Getty Images

AFP via Getty Images

Outbreak: Emergenccy workers at the coronavirus origin site in Wuhan, China. It has since spread around the world. Photo: AFP via Getty Images

Covid-19 has become a massive organisational, economic and political challenge as the virus spreads through Europe. With just a couple of cases on the island of Ireland, the next two weeks will provide a lot more clarity on where this is going.

In the coming fortnight, more organisations and businesses will have formulated their own responses to either having a case among their workforce, or dealing with the threat of a case.

Google and Twitter are grabbing many of the headlines. They are choosing to send thousands of staff home to self-isolate, without even having a confirmed case.

If Google can operate to a reasonable level with almost all of its thousands of Dublin staff at home, then good for them.

But not many businesses can do that. It might also prompt management to rethink how much has been spent on offices!

What if you are a Dunnes Stores, a Penneys, a Tesco or any other major retailer? Never mind those working in restaurants, bars and hotels. This just isn't an option.

The challenge for businesses around the country will be to develop a corporate response which is proportionate and takes care of staff, while also avoiding going into lockdown. Closing a facility will cost businesses more than some of them can bear.

At one organisation abroad, where there was a confirmed case among the staff, around 80pc of employees have been sent home to self-isolate. The remaining 20pc were essential to keeping the operations of the business going.

Another confirmed case there and perhaps everything shuts down. This is what many businesses will be trying desperately to avoid, while still acting in a responsible way.

Here, the Department of Health has said it has sought out and is monitoring people who have come into direct contact with the first case in the Republic of Ireland - a student in the east of the country.

In the climate of panic that appears ready to set in, it will be very difficult to ensure a proportionate or measured response from people running the likes of schools when a parent has a work colleague who has tested positive.

Will school principals ask children of parents, who work in the same company as someone with Covid-19, not to send their kids to school?

Manufacturing businesses will be hardest hit. They cannot keep working unless staff are together on site. They will also notice blockages early in the supply chain for parts and raw materials.

The blockages in supply chains emanating from China are starting to hit. Reports suggest the breakdown of China-based electronics supply chains because of the coronavirus is delaying the arrival of computers and smartphones in shops.

Electronics retailers in the UK have been told that it is taking up to three times as long for PCs and parts to be delivered. Industry experts said that only those brands able to pay upfront and work closely with component suppliers, such as Apple and Samsung, would be able to secure enough production capacity, as shortages ripple through the supply chain.

Not being able to buy your new smartphone or PC right away isn't the end of the world.

But where companies are buying in bulk and have to put their plans on hold, corporate profitability starts to take a hit.

Perhaps the industry most vulnerable to a rapid fall-off in business is travel.

Bosses of some of the largest airlines in Europe, including Ryanair, Easyjet and IAG, tried to play down the impact at a trade conference in Brussels on Tuesday. They dismissed concerns the coronavirus outbreak would cause significant and long-term damage to passenger demand, relying instead on some questionable comparisons such as the Sars outbreak and the 9/11 terrorist attacks.

But the 9/11 attacks had a disastrous impact on some airlines. The week following the attacks, the US Congress put together a law that created the Air Transportation Stabilisation Board, a body authorised to give faltering airlines up to $10bn (€9bn) in loans.

Several prominent American airlines declared bankruptcy not long after the 9/11 attacks, including US Airways and United Airlines.

However, Ryanair's Michael O'Leary may well have hit the nail on the head.

"The immediate short-term panic about travelling will erode very rapidly. It will erode over the next two or three weeks," he said.

If the number of cases is under control and people behave rationally, then he may well be right. But what if the numbers rise rapidly?

Last Friday morning, there were three confirmed coronavirus cases in Switzerland.

By Friday night it was nine and by Tuesday it was 46.

Would you travel to Switzerland in a few months' time, if it had roughly the same number of cases as Ireland? You might not go to northern Italy, but it doesn't mean people won't travel at all.

The problem for airlines is how much business and forward bookings they stand to lose in the weeks ahead as people adopt a wait-and-see approach.

The implications for tourism in Ireland could be dramatic. This is the time of year when most Americans book their summer trips to Ireland - never mind St Patrick's Day celebrations and whether they go ahead.

Between July and September 2019, we had 3.3 million foreign visitors to Ireland.

Business accounted for around 350,000 of those. Business travel has already been badly hit.

Of the 10.6 million visitors to Ireland in 2018, North America accounted for 23pc or 2.4 million visits. Americans tend to stay longer than other visitors and spend more money while here.

The counter-argument is that due to coronavirus, more Irish people, scared of travelling abroad in the coming months, will stay at home and have a holiday here. Could this be a boon for the domestic tourism sector?

In 2018, Irish people took 8.2 million trips abroad. Just over 10pc were for business. Holidays accounted for 5.3 million trips. It is a staggering number, but it will depend on how things play out, not just in the coming months, but even sooner in the next few weeks.

For people running businesses, the seriousness of the Covid-19 symptoms (and many who have it say it is only like a bad cold) isn't the only issue. They have responsibilities to staff and their families and they will be expected to adhere to whatever guidelines are issued by the authorities.

So even if people are over-panicking somewhat, businesses will be expected to do what they can to prevent the spread of the virus. This may well save lives but it will also cost billions.

Stock markets in Europe settled down somewhat after massive falls last week. They took comfort from comments about how willing governments and central banks were to adopt stimulus measures.

In Ireland, European Central Bank rates are already at rock bottom. The Exchequer is already preparing for a post-Brexit stimulus package for businesses. We don't even have a government in place yet. The pressure to introduce some kind of stimulus to support the health service, and businesses through lower PRSI or reduced VAT, will be enormous if the situation worsens.

Having just started putting money into the rainy day fund, the new government may have to crack it open a lot sooner than expected.

Stimulus measures will eat into any projected Exchequer surpluses. Indeed, the economic costs could trigger a major slowdown which would wipe out Exchequer surpluses altogether.

The human health crisis of Covid-19 has indeed spread into organisational culture, business, the economy and now politics.

For many, the economic symptoms may be more severe than the physical ones.

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