Impact of COVID 19 on Tourism and Financial Services and its Long-term Implications for Global Trade
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Impact of COVID 19 on Tourism and Financial Services and its Long-term Implications for Global Trade
The COVD-19 pandemic started in China in the year 2019. This pandemic has been transmitted globally within a short period. The human and business impact of the COVID-19 epidemic continues to unfold globally. The rapid pace at which the pandemic is spreading and the global actions are taken to curtail it has an unprecedented impact on the way we live and do business. The economies of various countries have been affected negatively since almost every business sector closed down. The most disturbing challenge of this pandemic is its faster growth rate and the number of dead in a day. Those countries that opted for complete lockdown as a strategy to reduce the spread of COVD-19 were mostly affected economically. Employers in some states reduced the number of their employees while other employees were forced to work from home, which in turn affected the trading activities. The prices for stock securities of various companies reduced as well as the volume of shares traded during the pandemic. Tourism sector being part of the economy was significantly impacted by the lockdown and social distancing being among the COVD-19 curbing strategies. The year 2020 was expected by many people to be the year of investing and much travelling, the high spread of the COVD-19 put all the planned activities to halt.
The COVD-19 fear has yielded to chaotic conditions and various uncertainties in many industries. The tourism industry has faced the challenge of a sharp reduction in their revenues and being the most affected industry due to the pandemic of COVD-19(Nicola et al., 2020). These effects have not only affected the supply side in terms of closure of the catering and accommodation areas or leisure facilities used for tourism but also affected the demand side which entails restrictions on freedom of movement, guest fear of infection, borders closing. The negative impact o demand and supply in the tourism sector has reduced the revenue for the industry. Inadequate revenue collected will delay various payment to be don’t within the industry like payment of salaries to their employees. Hostels and other restaurants used for tourisms will need to pay their employees with less or no services delivered.
Furthermore, there has been substantial fall in the valuation of various industries in the tourism sector; these industries include hotels, cruise lines, car rentals and airlines (Sharma et al., 2020). The drop is so critical enough for each of the industry to warrant concerns their future going concerns and their long-term outlook in the market. This is a significant concern for the cruise industry because the business-leisure traveller ratio is likely smaller for the cruise industry than other sectors. There is a presumption that business travel may recover quickly than leisure travels. People will prefer to risk travelling to perform business activities, unlike travelling for leisure. The tourism sector is involved in leisure transport will still be closed until a full recovery of the economy. Travel to those countries which was adversely affected will take time to stabilize their hotels and other tourism facilities, thus reducing the number of visits after the pandemic. The level of funding of these industries will depend on other factors as well as the size of such a drive to be funded for rejuvenating their services after the pandemic.
Moreover, the travel agency concern with tourism sector has faced several requests for a full refund of the money used to book a travelling slot. COVD -19 pandemic forced many families to cancelled their travels to other countries or within the country for tourism activities. Many banks had to perform all these refunds using the credit cards of the customers. Most of the credit cards that entailed the tourism expenses from various banks are refunded, and the methods to apply for refund are well described. One of the post-pandemic strategies in the tourism sector will be travel insurance option which now most people have understood the importance of the same. Most people were in search of travel insurance during the COVD-19 crisis to help them reduce the risk of losing their travelling funds as well as the risk of exposure of the pandemic. Travelling agencies can reduce the travel reservations of long-term planning by giving affordable insurance options to their tourist customers. The figure below shows data of different international tourism travelling over another time during the COVD-19 pandemic.
Also, the other impact of the COVD-19 crisis on the tourism sector is that it will take a longer time for people to return to their past mobility behaviour even after the pandemic. People, mostly tourist, are affected by anxiety, fear, and insecurity since they are now used to staying indoors and in the local areas. This pattern in the tourism sector will lengthen the reinstatement period, which is the root for less growth of the industry. The tourist demand side has been dramatically affected by the enormous change in the cultural and social activities of the industrial society and modern service, especially the transport system, economic and technical innovations. Despite a decrease in the growth rates, the tourism sector is one the world’s fastest-growing market. The tourism sector’s plan B can be highlighting different attractions, giving various influencers as a brand, improving location reputation and attracting tourist. The COVD-19 pandemic renders all of these strategies useless and lost their effectiveness in the industry.
Furthermore, social distancing used as a strategy to curb COVD-19, involved activities like reducing social contact, avoiding places with many people or reducing travelling. This strategy of social distancing may impact how people evaluate leisure and travelling such as hiking, nature-based tourism and how people utilize their leisure times. The physical distancing can influence how tourists will perceive health hazards, bad tourisms experiences and insecurity. Tourism is sensorial and an excellent pleasant experience. Servicescape has a significant influence on tourist’s emotion, service evaluation and attitude. COVD-19 will impose long-term behaviour in the industry of tourism since it requires that services capes change the tourism experiences (Boin et al.,2020). The new standard of psychology will be introduced since the number of people in a crowded restaurant is determined as well the level of cleanliness will be increased due to regular washing of hands in the tourism areas.
Banks have been called upon to support the government-led schemes. Banks usually plays a significant role in times of financial crisis as they can provide loans to individuals and businesses. Also, the government needs to intervene through by coming up with some schemes in assisting the vulnerable people. Banks assist in the provision of the emergency funding loans or stand-by liquidity through loan facilities which have led to high corporate and household indebtedness thus increasing some bank risks including credit misallocation, credit losses, and possibly banks’ solvency. (ITR,2020).
Also, as the central bank increases the interest rates, it imposes more pressure on the bank’s interest margin. Furthermore, by central bank funding the business, they may choose to stress test banking resolutions developed after the global financial crisis. Central banks around the world, meanwhile, have already proactively intervened to calm markets and show commitment to using all possible measures. In its first emergency move since the recession in 2008, the US Federal Reserve (the Fed) recently cut the federal funds rate by 50 basis points. The fed has also increased liquidity. Additionally, the Bank of England and the European Central Bank (ECB) have announced various plans to counter COVID-19 in the coming days (Deloitte,2020).
The non-bank financial sector may be more at risk if confidence and liquidity condition deteriorate. According to IMF (2019), the fact that due to the extended period of accommodative financial conditions, investors have been searching for yield, and in particular institutional investors with nominal return targets have invested in riskier and more illiquid assets. According to the IMF Global Financial Stability Report of October 2019, risks in nonfinancial companies and nonbank financial institutions in several systemically important countries are at historic heights. If the crisis leads to a sudden stop in lending, these firms could be in trouble.
Trade is one of how COVI-19 has damaged both the domestic and international economy by making trade flows susceptible to demand shocks (purchases fall) and supply shocks (production falls). The risks of the coronavirus to supply chains are significant, as China represents approximately 15-20% of world GDP. China has become the central manufacturing hub of many global business operations. Any disruption of China’s output is expected to have repercussions elsewhere through regional and international value chains. Most Products imported from China include both finished products and intermediate products, and hence massive disruptions will affect all sorts of businesses abroad, including retailers, distributors and manufacturers. Many companies are closing down, especially the automotive industries. With ongoing shocks to the supply and demand side, there is potential for further market disruption, thus hampering the financial markets. Institutions and individuals may be experiencing liquidity stress, including limited access to credit. This might, in turn, increase the probability of default, especially near or in the speculative-grade of corporate debt (UNICAT,2020). The US, China, Japan, Germany, Britain, France, and Italy are all in the top-ten most affected by the disease. While China is by far the hardest hit, the last few days have seen an exponential growth of cases in the G7 economies. This table shows the GDP, manufacturing and manufacturing exports of large economies and COVID 19(updated 29th February 2020)
Mass flight cancellations. This is whereby there is “No travels” that is no travelling to and from other countries. This has led to global travel sector to experience severe disruptions, for example, as a result of travel restrictions and the closure of tourist attractions because of fear of this disorder. Multinational companies and luxury goods makers who rely on Chinese consumers have already suffered and had to close stores. As such effects proliferate around the world, U.S. exporters will find it harder to sell their wares around their globe, which will have negative repercussions for U.S. growth and jobs and also the capital inflows thus affecting the financial markets negatively (Schuler, 2020).
Fears of a broader outbreak and its economic impact spread to financial markets last month, and most international indices are nearing bear market territory (declining at least 20% from the 52-week high) as investors process the lower corporate earnings that will result from the virus. Overall, the index is down about 17% from its record high on February 19. Amid the equity rout, investors have fled to safe assets such as U.S. Treasury bonds which led to low yields translating into low borrowing costs for the U.S. government. Still, low-interest rates may not benefit private companies or individuals (or even all sovereigns) who may find financial markets to risk-averse to extend credit in light of such uncertainty. The longer the virus spreads, the more economical and company performance will be impacted, raising concerns about debt sustainability, especially for highly indebted countries and companies, absent official support (CSIS, 2020).
In conclusion, it should be noticed that the government has a significant role in the fight against the pandemic of COVD-19 on different levels, like the recovery of the economy, especially in the tourism sector. Moreover, the tourism-related businesses should try to recover their business activities, and there are many government loans with no interest which will help these businesses to stabilize their trading. Laying off of the employees or closing down of the companies during this pandemic will lead to more negative consequences. COVD-19 has resulted in a lack of tourism due to its health issues and travel restrictions, which in turn has led to a negative impact on social-economic issues. Tourism requires more planned strategies to overcome after pandemic problems; the virtual classes on tourism should entail a piece of well-elaborated information about the physical existence of the tourism areas. The government should ensure the eradication of both tourism and over-tourism managerial problems to increase the growth and have sustainable tourism even during the pandemic of COVD-19. The gradual removal of the COVD-19 restrictions together with coming up with travelling guidelines and the resumption of the international flights are among the best strategies that the governments are putting in place to ensure restart of tourism activities in the tourism industry.
Furthermore, we have seen that financial services play a key role in propelling the economic growth of a nation but also presents some adverse risks thus there is need for prudent rules and regulations in maintaining stability and sound financial system in the foreign exchange market. There is need to take into account on some conventions like Generally Agreement on Trade Services (GATS) recognizes the need to regulate the financial sector for prudential reasons in its “prudential carve-out”, but also states that measures taken for prudential reasons shall not be used as a means of avoiding GATS commitments or obligations. The OECD Services Trade Restrictiveness Index (STRI) project was launched by the Trade Committee in June 2007 as a tool for quantifying barriers to trade in services at the sector level through the provision of regulatory services and Trade restrictive indices (OECD, 2007).
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