How covid-19 will change the global business climate

Covid-19 is threatening livelihoods as well as lives. Our cover this week examines the disaster the disease is unleashing in the business world. Countries accounting for more than half of global GDP are in lockdown. The International Labour Organisation estimates that industries in which the risk of lay-offs or furloughs is high employ 1.25bn people. The exit from lockdowns will be halting and precarious. And the calamity will have lasting effects, accelerating existing trends: the adoption of new technology; a rethinking of global supply chains; and the rise of well-connected oligopolies. Big companies are better placed not only to survive the crisis but to tap governments for support. At least banks are entering this crisis in far better shape than the last one. Some may struggle nonetheless.

Amid the extraordinary turbulence the pandemic has caused in financial markets, the plunge in oil prices stands out. They fell by more than half in March, as demand collapsed and a price war raged between Saudi Arabia and Russia (on April 9th OPEC and Russia made a truce, and agreed to cut production, but prices fell nonetheless). The Russians and (especially) the Saudis can withstand low prices, but other producers are hurting. Those include shale firms in America, the world’s biggest producer, but also poorer oil-dependent countries, such as Iraq. Oil provides 90% of Iraq’s state revenue. Even a doubling of its price would still leave a wide budget deficit. Iraq’s cash reserves may not last the year. And as if near-bankruptcy were not enough to contend with, its politics are in chaos and militias are running amok.

Europe has suffered the bulk of the world’s infections and deaths from covid-19; in Britain’s prime minister, it also has its most prominent patient. Yet continental solidarity has been lacking, notably within the European Union that Britain left in January. (And 27-way diplomacy by video link is scarcely ideal.) Although the European Central Bank has expanded its asset purchases, and governments have loosened their purse strings, the EU’s worst-hit countries, Italy and Spain, and economically vulnerable Greece, have less scope to spend than most. This week finance ministers failed to agree on issuing common “coronabonds”, with division falling along the same north-south lines as in the euro crisis of 2010-12. On April 9th, however, they agreed on an emergency rescue package.

The next iteration of mobile technology is already attracting nutty conspiracy theories. Who will gain most commercially from 5G is not yet known, but Donald Trump’s administration—fearing for the security of the digital infrastructure of both America and its allies—certainly does not want it to be China, and especially not Huawei. It is toying with European-style industrial policy to halt the advance of the world’s biggest maker of telecoms kit. Yet trying to exclude Huawei is a fool’s errand in a hyperconnected world (and may push China to greater technological self-sufficiency). Encouraging “virtualised” networks that combine off-the-shelf hardware with lots of software, of which the first was launched this week, would blunt Huawei’s edge while encouraging, not thwarting, competition.

Despite covid-19, on April 15th South Korea will press ahead with the election of its National Assembly. The authorities believe the outbreak is at bay but are insisting on elaborate safeguards: voters will face temperature checks and must wear masks and gloves before entering the booth. Polls say 73% of voters will cast a ballot, suggesting a higher turnout than in the previous poll, in 2016. This week we have published a special report on the country. South Korea’s spectacular economic rise is well documented; but in recent years its politics, society and cultural scene have also undergone remarkable transformations. K-pop and the Oscar-winning “Parasite” are just the most visible examples.