Markets drop as investors fear long-term economic harm from Covid-19 – business live | Business

Markets drop as investors fear long-term economic harm from Covid-19 – business live | Business

There are some sectors which may be facing a prolonged period of weakness. Aviation being perhaps the most obvious example. In recent weeks, several airlines have announced that they do not expect to resume normal operations until 2022 and Boeing, the aviation bell weather, expects it to take five years and anticipates the failure of at least one major airline.

Similarly, with retail having to comply with social distancing measures for the foreseeable future, this sector also faces serious challenges. In the UK, an Ipsos Mori survey found that almost 50% of Britons would feel uncomfortable shopping, other than in supermarkets, and the British Independent Retailers Association has forecast that up to 20% of smaller shops may not even reopen once government support schemes begin to fade. Even after lockdowns are lifted, market participants should anticipate a wave of business failures across many sectors and across countries.

Unfortunately, the fallout from struggling businesses does not just stop there. Bankruptcies create negative feedback loops, particularly for the labour market. Consider this: as we hear of more and more businesses contemplating closure, there are potentially millions of currently furloughed people who will not be reemployed. A second wave of job losses is perhaps in the cards.

And therein lies the problem. Markets may be right to look through Q2 numbers and look forward to a Q3 recovery. But it is entirely possible that there will be a Q4 reckoning, where a second wave of job losses & prolonged period of business failures tests equity sentiment.

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