The coronavirus pandemic, which broke out in full in March 2020, dealt a major blow to the world economy. It showed how vulnerable it is in the light of advancing globalization. Gulf Brokers analysed how the disruption of supply chains has caused a large-scale supply shock and pushed many industries to the very edge of their existence. Aviation, tourism, energy, the automotive industry and specialty retail were the hardest hit by the pandemic. On the other hand, it brought opportunities for the pharmaceutical industry and technology companies.
Airlines on brink of collapse
The worldwide number of transported passengers reached around 4.5 billion in 2019. A year later, as a result of the coronavirus pandemic, there was a decline of about 60 percent. According to the International Civil Aviation Organization (ICAO), airlines carried only about 2.7 billion passengers in 2020. From this perspective, the aviation industry has returned to the period of the turn of the millennium. Neither the attacks of September 11, 2001, nor the financial crisis of 2008 and 2009 had such a devastating impact on aviation as the coronavirus pandemic. During the same year, airlines lost about $372 billion in revenue. Dozens of airlines were at the mercy of national governments, which bailed them out with billions USD in capital injections.
Although there was a relatively rapid recovery in the following years, the volume of transported passengers and sales were still far from reaching pre-pandemic levels. According to ICAO preliminary estimates, aviation last year was less than 30 percent below the volumes of 2019. The full recovery of the aviation industry is still in sight, the sector is currently stifled by high fuel prices and uncertainty caused by the slowdown of the global economy.
Another industry that has found itself on the brink of existence due to the coronavirus pandemic is tourism. In 2020 alone, the sector saw a global decline of more than 70 percent, according to data from the World Tourism Organization (UNWTO). In this case, too, operators of tourism facilities had to rely on government financial support.
However, the tourism crisis continued in 2021, when, despite the relatively relaxed regime during the summer months, the industry as a whole was less than 70 percent below the level of 2019. Last year brought some hope. Compared to 2020 and 2021, there was a significant recovery. Compared to the period before the pandemic, however, it is still 37 percent in the red, according to the UNWTO.
Although it seems unbelievable from today's perspective, one of the sectors most affected by the coronavirus pandemic was also energy. Demand for it fell by approximately four percent in 2020. The main cause was restrictions in industry and mobility. In particular, the decline in transport volumes led to a global oil demand decline of more than 16 percent in the second quarter of 2020. This period also marked the first time in history that oil futures traded at negative prices.
However, the energy sector experienced a rapid recovery after the lifting of restrictions. First in industry, then also in air transport. The situation developed to the completely opposite extreme when energy prices began to rise significantly. The escalation of tensions between Russia and Western Europe and the subsequent Russian military aggression against Ukraine also contributed to this. In recent months, the situation in the energy sector has been stabilizing, and it can be said that the covid pandemic and its repercussions are having less and less influence on the energy sector.
The automotive industry did not enter the coronavirus pandemic in very good shape. Even before its outbreak, the sector (especially in Europe) was experiencing the effects of the onset of stricter emission standards, which led to a lack of new cars on the market. The pandemic exacerbated these problems, as drastic anti-covid measures also applied to the automotive industry.
In 2020, the global automotive market declined by about ten percent, according to OECD analyses. Europe, which is one of the most important centres of car production, bore the biggest burden. In 2021, there was a slight year-on-year recovery of about 3.5 percent to 66 million passenger vehicles sold. The number of all motor vehicles rose by only about 1.3 percent to 79 million in 2021, according to the European Automobile Manufacturers Association (ACEA). Last year, according to ACEA, there was a year-on-year increase in the production of passenger vehicles by less than eight percent. Even so, the automotive industry still does not reach pre-pandemic levels.
Even the automotive industry itself is undergoing structural changes. The share of Asia, especially China (its share rose to about 34 percent) in world vehicle production is growing, at the expense of Europe and North America. At the same time, the share of vehicles powered by electricity is increasing, whether it is fully electric vehicles, or some form of hybrids, or hydrogen (fuel cells) vehicles.
Specialty retail is an industry that has been overshadowed by much larger and more visible sectors in terms of the impact of the covid pandemic. At the same time, it was one of the most affected. According to analyst firm S&P Global, specialty retail saw the fifth-largest increase in the risk of failure during the pandemic. This development was related to reduced sales due to anti-covid restrictions, combined with consumer uncertainty, which increased significantly during the pandemic.
However, in the post-covid years, specialty retail began to thrive after restrictions were eased. Rather, it is currently threatened by a decline in real consumer incomes due to persistently high inflation and increased uncertainty due to generally uncertain global economic developments.
The pharmaceutical industry is one of the sectors that we could label as the winner of the coronavirus pandemic. This is mainly related to the relatively rapid development of vaccines against SARS-CoV-2 and their launch on the market at the end of 2020 and in the first months of 2021. The companies behind the delivery of vaccines against the coronavirus experienced a significant increase in sales and profit. These are mainly the companies Pfizer, BioNTech, AstraZeneca, or Moderna.
The positive development of the healthcare sector during covid was reflected in the development of the S&P 500 Health Care Sector Index. Its level dropped to 900 points in mid-March 2020, but within two years the index rose above 1660 points. The index strengthened by more than 80 percent.
However, as the pandemic subsided, the above-mentioned companies will have to struggle with the return of sales and profits to their original levels, as the demand for vaccines quite logically declines. The S&P 500 Health Care Sector Index retreated a bit but still stands well above the 1500-point level. However, the pandemic was responsible for the development of mRNA technology, on which many vaccines were built. However, this technology provided the basis for its application in other vaccines, not only against the coronavirus.
Technology companies have seen a similar development to the pharmaceutical industry. Their boom was caused by a sudden change in the form of communication between people. When it was impossible for them to meet, they started to communicate with each other remotely through the Internet and various communication platforms. The technological boom was also reflected in the stock markets by an increase in the market values of technology companies. However, the last year brought a reversal of the trend in connection with how the situation after covid began to return to normal.
The Nasdaq index perfectly describes the development of the entire technology sector. As soon as the coronavirus pandemic broke out, the Nasdaq fell below 7,000 points. But soon there was relatively strong growth, as technology companies began to offer solutions that made life easier for people during the pandemic. The Nasdaq index rose to a record level of 16,057 points in November 2021. However, there was a drop during the past year, but the Nasdaq remained about 20 percent above the pre-pandemic level.
More resilient today?
It has become clear that some sectors of the national economy may be more vulnerable if they are hit by a crisis comparable to an infectious disease pandemic. However, every crisis is also an impetus for adaptation, which the companies in the mentioned sectors have confirmed. They seem to be more resilient now and ready for full-scale growth.
In recent weeks, for example, the airline giants reported strong earnings for the last quarter as the global travel market continues to show positive signs of recovery from losses incurred because of the Coronavirus pandemic.
On the other hand, the industries for which the pandemic turned out to be the wave on which it rode, especially tech and pharma sectors, are experiencing some slowdown today. This can be considered a natural development.
Financial Analyst of Gulf Brokers
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