top of page
Image by Akshay Nanavati

Economic impact of

Covid-19 on Growth Markets

July 2020


The number of confirmed COVID-19 cases has surpassed the 12.3 million mark worldwide and the number is still rising rapidly despite the mobility restrictions imposed by governments around the world. The death toll has exceeded 555,000, making this deadly virus the worst humanitarian crisis since World War II. From the loss of thousands of human lives to the massive global economic damage, the pandemic has changed our lives in unprecedented ways, ranging from the spending potential of households to the way people interact with each other.


Many countries around the world are seeking to contain the spread of COVID-19 by practicing social distancing, at the cost of a balanced economic and social structure. Lockdowns have restricted business operations, bringing the world to an abrupt halt from a manufacturing and production perspective. Emerging nations, that at the beginning of 2020 were once set to deliver stellar growth, are now hanging by a thread. 


Emerging nations will lose trillions of dollars in 2020 

The pandemic has re-shuffled the order of the world's most powerful economies like the United States and China after the virus first originated in the city of Wuhan in late December. China's GDP dropped by a whopping 36.6% in the first quarter of 2020 due to its  forced unphased containment strategies. The epicentre changed from Italy to New York to Brazil in the matter of a few weeks, wreaking havoc on all regions alike. According to the IMF, the global economy is expected to shrink by over 4% in 2020 – the steepest slowdown since the Great Depression of the 1930s. 

The lockdowns have curtailed global economic activities severely and it has become increasingly difficult for large emerging markets such as India to contain the virus while precluding heavy economic losses. The International Monetary Fund recently slashed the country’s growth forecast for 2020 from a previously estimated 5.8% to 1.9%. While the current fiscal year began dreadfully, policymakers anticipate some semblance of normality returning by the fourth quarter of 2020. They may be blindly optimistic. CRISIL, an Indian analytical company, recently shared some figures reflecting the shrinking Indian economy as a result of the coronavirus clampdown. In its assessment, the country will likely suffer a staggering 25% contraction in the first three months as a result of the nation-wide lockdown. 

For emerging regions that were already struggling to achieve economic growth targets, such as Latin America, the virus has been even more devastating. According to a recent Mckinsey report, Latin America is currently one of the slowest-growing regions in the world and the pandemic will push many countries in this region to the brink of defaulting on their dollar-denominated loans. Reuters recently reported how a few weeks of quarantine had forced two of the largest airlines in the region, LATAM and Avianca, into bankruptcy, marking Latin America as the worst hit region for aviation sector fallout globally. 

The hardest-hit business sectors 

With stringent lockdowns in place, the travel, aviation, and hospitality sectors have borne the brunt of the crisis. According to the World Economic Forum, before COVID-19, approximately one million Chinese tourists had visited Bali every year. Australia, too, had been a preferred destination Chinese tourist spending exceeding AUD 11.5 billion in 2019 alone. With travel bans still in effect and likely to be extended depending on the progression of the COVID-19 virus, losses will be huge. As far as global trade is concerned, the WTO has warned that global trade could decline by as much as 32% in 2020. Two other heavily impacted industries are the Auto parts industry and Oil & Gas drilling. Commercial real estate in emerging nations is also facing significant impact and this negative impact is likely to be permanent as the stay-at-home economy evolves in the coming years. 

The path to recovery and the characteristics of the new normal 

While economies deal with the crisis in their own ways, the foundation to restoring any type of normality in a global pandemic remains the same: extensive government, international, and community support. 

COVID-19 has worsened the pre-existing financial vulnerabilities for every country and the governments are bringing the best possible measures to mitigate its impact, giving some hope to the hardest-hit sectors of the economy. Besides the enormous health spending, governments and the global community are seeking means to protect people from the economic impact of COVID-19 and the subsequent lockdowns.

The International Monetary Fund, for instance, has $50 billion available in rapid-disbursing emergency financing to help countries survive the battle. Additional support, in the form of a separate national and international funds to support healthcare, such as PM-CARES Fund in India, allow anyone who feels able to contribute towards the wellness of people in their respective countries. A wide range of policy measures has been announced for SMEs in both China and India to support the battered small businesses in their countries in a bid to keep the economy from falling into an abyss. Many banks in emerging markets such as India, Sri Lanka, China, and Mexico are helping borrowers by extending the due dates to repay debt, which is another initiative taken with small business owners in mind. 

Central banks have also responded to the pandemic by cutting interest rates in ways designed to encourage people to resume business activities. Safety protocols have been put in place to make operations easier. Other employment subsidy plans, unemployment insurance schemes, and credit guarantees have been introduced across many emerging markets to support the business community. Solvency issues in the developing world have always been a matter of concern but knowing that, governments in almost all countries have extended the credit lines which will help businesses get back on their feet. 

In this “new normal”, emerging markets are likely to depend more on e-commerce and other online-oriented business models to galvanise their flagging economies. The data coming in from developed countries can be used as a close proxy of what to expect from emerging nations. According to Forbes, there has been a 129% year-over-year growth in U.S. and  Canadian e- commerce orders as of 21st April 2020 and an impressive 146% growth in all online retail orders. According to another report by the Boston Consulting Group (BCG) titled ‘Turn the Tide’, digital-friendly trends have led to a 51% increase in payment via digital wallets. 


The new normal will bring about radical changes in the payment industry in emerging markets as well. People have virtually replaced physical transactions with contactless micro-finance services amidst the prolonged lockdowns and they have also embraced digitization as never before. Telecom operators are booming and mobility restrictions will permanently increase the demand for mobile data across the board as consumers adapt to a future without large public gatherings. 



Covid-19 is disrupting emerging economies. For now, countries that were expected to grow exponentially such as India, China, and Vietnam will remain under pressure, and growth is likely to be negligible this year. However, extensive fiscal and monetary policy measures introduced by governments and central banks will help mitigate the impact to a certain degree. Once Covid-19 recedes, emerging nations are primed to become stronger than ever and the existing technological gap between emerging and developed nations will likely reduce as emerging market consumers embrace technologically driven solutions at a record pace. This is the one silver lining that can be seen amid the dark clouds.

About the author(s)

Harold Alby is a managing director and chief operating officer at Inova Capital. Justin Inniss is a managing director at Inova Capital.For more details on our insights please get in touch with us at Inova Capital AG on +41 415616905. Inquire about our ideas and nowcasting capabilities.

bottom of page