Impact of Coronavirus and Oil Price Wars on US Economy
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US Markets Crashing Amidst Coronavirus Fear and Oil Price War

Updated on March 11, 2020 12:00 am
US economy hit by coronavirus

Within moments of the United States stock market opening on March 9, 2020, the stock market crashed so rapidly that trading was paused to prevent stocks from dipping further. Cited as the worst day in the global stock market, the immediate triggers can be attributed to two anchors:

First, the actual impact and the fear of coronavirus outbreak has crippled the economy.

Second, Saudi Arabia's decision to launch an oil price war against its one time ally, Russia.
 

Impact of Coronavirus on the US Economy 

With several industries being affected by the Coronavirus spread, the global economy is taking a big hit.

  • The economic fallout caused by COVID-19 could trigger recessions in the U.S., euro-area and Japan.
  • Automobile sales have already plunged to 80%
  • Air travel is down by 85% from normal levels
  • Several Fortune 500 companies within the US have temporarily shut businesses in-house and have their employees working from home.
  • Uncertainty of the future containment of the Coronavirus is negatively impacting business, both at the local and national levels.
  • Lower valuations and increased volatility in the financial markets will have long standing repercussions which a correction will not fix immediately.
  • Supply-side shock: COVID-19 has brought factories to a complete halt, impacting supply chain and delaying delivery. Global brands including Apple are taking a major hit.
  • Supply chain disruptions are delaying product completions for many US firms.
  • With China as the epicenter of the Coronavirus, productions are delayed for all products coming out of China.
  • Bloomberg predicts a total loss of $2.7 trillion in the global economy - equivalent to the entire GDP of the U.K in lost output.

Impact of the Oil Price War

Global oil prices took a major hit and succumbed to a historic collapse on Monday after Saudi Arabia shocked the market by launching a price war against Russia. The price of crude oil was down more than 24% to hit an all time low since 1991. It has threatened the viability of small oil companies and the corporate bond market aided by the significant collapse in oil demand due to the coronavirus.

How Does the Financial Market Crisis Impact Remittances?  

Remittances are an important source of external finance for many developing countries. Learning from the 2008-09 global financial crisis, Remittances tend to be stable and even rise in times of crisis because families living and working abroad send more money to assist their loved ones back home. For example, in  the case of Mexico in 1995, to the Philippines and Thailand after the Asian crash in 1997. According to a report by the RBI, Global financial crisis has so far failed to significantly slow down inflow of remittances in India, citing that the uncertainties in oil prices might have "induced the workers to remit their money to India as a hedging mechanism due to its relatively better growth prospects".

In a study titled, The Impact of the Global Financial Crisis on Migration and Remittances by Sanket Mohapatra and Dilip Ratha, there are several reasons for the resilience of remittances in the face of economic downturns.

  • Remittances are sent by the cumulated flows of migrants over the years and it is not limited to the new influx of migrants or the lack thereof in the past year
  • Remittances are a small part of migrants' incomes
  • If migrants do return to their home countries, they are likely to take accumulated savings with them.
  • Migrants may send higher remittances for investment purposes to diversify the risk of an economic downturn.

Is it a good time to send money? 

The primary factors to consider before sending money online are - exchange rates, transfer fees, and transfer speed.

Exchange rate: With a bear market, the exchange rates are at the highest. For example, 1 USD is nearing 74 INR. Which means the remitter in the US gets more INR for USD.Subscribe to our exchange rate alerts for real time updates.

Transfer fees: The transfer fees vary depending on the money transfer service providers, types of payment and receiving method.
Transfer Speed: Transfer speed also varies depending on the type of service, amount of money, and the money transfer companies.Compare them before sending money online.

Stay tuned to CompareRemit's news section as we continue to monitor the markets and analyze its effects on global remittances specifically and the economy as a whole.

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