How will Coronavirus Affects World economy?
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CORONAVIRUS & ECONOMY 2
How Coronavirus Affects
the World Economy
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September 28, 2020
Abstract
The novel coronavirus disease of 2019 (COVID-19), whose origin was Wuhan, China, has caused serious aftermaths on the world economy. The universal gross domestic product (G.D.P.) growth has already declined from 2.9% to 2.4% during the first half of the year. The more the virus has spread, the greater it has had its purge on the worlds economic feat. Nations that owe huge debts with elevated apprehensions on economic sustainability have been the most susceptible. The stringent lockdown restrictions on human movement have had not only serious consequences on the social livelihood but also the economic dimensions.
Additionally, the calamity is stimulating a severe reduction of fiscal proceeds in state and local governments, more so municipalities with lower per capita income. The coronavirus has led to many workers who have been victims of retrenchment during this tough season. It has been referred to as an invisible adversary. This paper aims to show through thorough research on how coronavirus has affected the economy. Consequently, it will also reveal that a substantial economic effort will be required to uphold the most vulnerable and affected human beings who have put in struggle and determination so as to alleviate the poverty upsurge and inequality. As indicated by UNIDO (2020), an assessment of the collections of I.I.P. data for April 2020 with that of December 2019 exposes that industrial production dropped by 20%. This paper will seek to stipulate an inclusive perception of coronavirus’s prospective macroeconomic upsets with a close look at the affected economic sectors in conclusion.
Keywords: economic feat, industrial production, G.D.P., fiscal proceeds, economic sustainability, per capita income, poverty upsurge, inequality, retrenchment, UNIDO, I.I.P.
Effect of Coronavirus on the World Economy
Problem Statement
The current outbreak of global pandemic (i.e., novel coronavirus) has resulted in a ‘de-globalization’ process wherein states have been coerced into lockdown of borders (citation required). The usual economic resources flow, including labor, goods, and capital, has been enormously disrupted. That said, the macroeconomic blow has already begun to be felt by many countries. The economic repercussions of the coronavirus have generally been dubbed as Coronanomics ( (Barua, 2020; Eichengreen, 2020), while some refer to it as the Black Swan (Barua, 2020; Petro, 2020). The G7 nations that run the economy, i.e., Italy, France, Britain, Germany, Japan, the U.S., and China, have extremely been affected by the virus (Barua, 2020). The economic crisis in these countries has left the world in shock because of its health and economic implications. These nations own 65% of worlds manufacturing, 60% of world supply and demand (i.e., G.D.P.), and 41% of world manufacturing exports’ share (Baldwin & di Mauro, 2020).
The coronavirus pandemic has seriously left the world on a stand-still. Its sweep has resulted in governments, including huge enterprises across the globe, crunching figures of expenditures and overheads while everyone is questioning what salvage looks like in the foreseeable future. In the base case scenario, domestic demand in China has been curtailed by 6% in the first half of 2020, revealed in every economic sector (Assessment, O.I.E., 2020). A desire to flatten the curve will not only directly save lives but also the economy. There is also a “domino” scenario, which is a broader contagion that considers the hypothetical effects if the virus’s occurrence in China were to spread more exceedingly than it did. The I.M.F. reports that the global economy will decline by 3% in 2020 (Jones, 2020).
Purpose of the Study
This report aims to elaborate on how coronavirus is impacting and has already affected the economy worldwide, especially the industrial sectors (citation required). The paper will concisely delineate the avenues wherein economic activity has been obstructed with also a look into universal economic overheads of COVID-19 under diverse circumstances (citation required). Since the global unrest that has been caused by this pandemic, the International Monetary Fund (I.M.F.) has come up with assessments of economic growth rate in 2020 that have major implications (Fernandes, 2020). For instance, in February 2020, it was estimated that the international gross domestic product (G.D.P.) growth rate would fall to 2.4% for the entire year, with reference to 2.9 % in 2019.
Despite the fact that the large-scale effect signs of COVID-19 have progressively become evident in diverse economies, a progression effect has not yet been replicated in a quantifiable way (citation required). Nonetheless, the entire world needs to be thoroughly prepared since every adept economist agrees on an upcoming decline across all economies (citation required). In recognition of this fact, state governments across the globe, more so in most of the established nations, proclaimed economic and fiscal guidelines.
Additionally, there is a concession amongst policymakers that government regimes need to take up a combination of innovative well-targeted fiscal and monetary policy actions that are completely unrelated to the systems that have been adopted in the near past. This policy implementation, in turn, leads to the fact that any policy measure that will be taken on as a reaction to the current catastrophe needs to be per the following key aspects:
The measures ought to be all-inclusive or comprehensive,
The actions need to be innovation-driven.
Traditional policies and guidelines may not be as effective and real-time.
The adopted procedures require to be synchronized at the cross-border level in all the economies.
The universal agencies or organizations such as the World Bank need to effect exceptional economic packages and health plans.
The traditional health-economics methodology that relies on indicators such as death rates, illnesses, loss of income, time, and direct expenditures on the health sectors miscalculates the true economic shock of the current crisis (citation required). The available evidence from prior outbursts such as SARS and pandemic influenza offers crucial data that aids in comprehending the greatest repercussions of COVID-19 (citation required). Data from the 2002/3 severe acute respiratory syndrome SARS(what does this stand for?) and the 1918 H1N1 virus give adequate information on the extent of economic shocks posed by the current outbreak. There is no direct link stuck between mortality rates and economic impact (citation required).
Significance of This Study
This study will establish how every economic sector’s response in countries has generated a real-time demand and supply blow. The macroeconomic effects of coronavirus will be revealed in the aggregate demand and supply of the economy in due course. These effects are likely to decrease employment opportunities due to layoffs accrued from manufacturing cutbacks and commercial stoppages across the world economies. The International Labor Organization assesses that worldwide joblessness might elevate to a figure between 5.3 million (a low-case scenario) and 24.7 million (a high-case situation) founded on the global G.D.P. growth estimates. The mid-case scenario of joblessness is anticipated to be 13 million following this analysis (citation required).
Since the Great Depression experienced in the1930s, the decline stands severe (Jones, 2020). Given that we are in a more cohesive world, the current crisis generates spillover upshots all over the supply chains. It is important to look at the country where coronavirus originated, i.e., China, which has approximately 16% of the global economy. It is fundamental to mention that a low bearing of the pandemic on the death rates and the number of cases do not automatically render a low economic impact.
At present, any upset to the Chinese pursuit is intensely felt in global markets and across various sectors (Assessment, 2020). In fact, as of the year 2019, China recorded a 13.9% and 12% figure share of global exports and imports, respectively (Fernandes, 2020). Accordingly, the country is currently the world’s largest importer and exporter, and it represented approximately 40% of the world’s growth in 2019.
Additionally, huge enterprises like Apple, Hasbro, and Nike that rely on China for intermediate inputs are affected by the current crisis (citation required). Notably, these are companies that run the global economy. 75% of companies report interruptions in their supply chains, according to the U.S. Institute for Supply Management Interruption of the supply chains will increase the expenditures in the manufacturing companies. As a result, companies like Hasbro, which obtain approximately 70% of China’s toy manufacturing goods, are in misery.
To add on, central banks in many nations have also trimmed their interest rates. The travel sector is one of the most affected due to restriction on movement, more so flights, as proven by the World Travel and Tourism Council that global travel may dwindle by 25% (Staff, 2020). Consequently, the agricultural sector has also been majorly stubbed by the ripple effect with a drop in commodities by 20% (Nicola et al., 2020). All these establish the socio-economic implications of coronavirus on primary, secondary, and tertiary sectors.
McKinsey’s data shows that 35% of respondents from the United States were positive about their state’s economic recovery following the coronavirus. Correspondingly, 16% of American respondents were negative and doubtful in regards to this. A close evaluation of I.I.P. data with a comprehensive comparison of March 2020 with December 2019 shows that roughly 81% of nations have undergone a decline in industrial production of 6% on average (UNIDO, 2020).
Affected Sectors
Food Industry
A global crash in demand from the hotel industry has already seen agricultural commodities drop by 20% around March. The trend has deteriorated as the year has gone by (Bhosale & Bureau, 2020). To add on, most markets had shut down floor trading. This mechanism had positively influenced the capability to exchange commodities to generate a substantial livelihood. In addition to the surplus of food commodities and the struggle in revolving to retail customers, recruitment deficiencies are being met by farmers across many countries.
In general, the foremost bearings on food accessibility remain to be propagated via indirect causes further up the value chain. These bearings are inclusive of the constraints on the mobility of people and also goods. This leads to the fact that while food normally remains accessible, certain restraints exist on where and what citizens of nations around the world can gain access to. Most of the harvested food commodities found themselves piling up in enormous warehouses due to the lockdown restrictions.
Petroleum and Oil Industry
Saudi Arabia, which is regarded as the de facto leader of the Organization of Petroleum Exporting Countries (OPEC), increased its oil provision by 25% (Nicola et al., 2020). This increase resulted in a sheer one-day price collapse that has never been seen in almost 30 years. As a matter of fact, on March 23, Brent Crude declined by 24% from $34/barrel, thus stood at $25.70.
Manufacturing Industry
The British Plastics Federation (B.P.F.) survey revealed that over 80% of the involved respondents anticipate a decline in stock turnover in manufacturing businesses. Moreover, 98% admitted on concern about the pandemic’s negative impact on business operations. The latest McKinsey Global Survey conducted from April 6 to April 10 reveals that respondents are more positive when considering their companies’ forecasts over the next six months (Mckinsey, 2020). An economic impact analysis operated by the United Nations Industrial Development Organization (UNIDO) COVID-19 shows that the pharmaceutical industry was one of the very few “winners.” In contrast, motor vehicles have been the greatest “losers.”
It is important to note that key chemical manufacturing companies such as the BASF have majorly been upset by delays in their activities (Nicola et al., 2020). This is because such a company was in the course of raising production in China. As a result, this has contributed to delay in their activities, leading to a flop in projected growth mostly due to importation issues and recruitment shortcomings (Knieps & Woche, 2020).
Education
According to the UNESCO studies, around 900 million students across the world have been negatively impacted by the unavoidable shutting down of learning institutions (Nicola et al., 2020). This unfortunate course of action has had immense side-effects on the social and economic factors (Bonaccorsi et al., 2020). Additionally, Brookings Institution conducted a study modeling these cessations in major cities in the United States, which proposed that there would be a median cost of $142 per student per week if the status quo were retained. A forecasted estimation of a nationwide closure for 12 weeks would cost 1% of G.D.P. while a four-week closure of New York City would lead to an economic expenditure of $1.1bn.
Moreover, there has been elevated uneasiness and apprehension concerning the number of annulled and lost scientific conferences ever since the virus started spreading. These sessions are very fundamental in scientific research across diverse disciplines. They critically facilitate the propagation of research and offer opportunities for networking and exchanging ideas to boost the world economy. Most of these conferences have had to be conducted virtually. Nonetheless, these virtual sessions are not as open to networking and informality, both of which are vital channels of scientific communication.
Financial Industry
The capital market sector has also been one of the sectors that have been upset by coronavirus pandemic. A stock market index that evaluates the stock performance of 500 large companies on the United States stock exchange reported that the Dow Jones Industrial Average, and the Nasdaq radically declined.
The effect was very immense that it led to the U.S. government obtaining the Coronavirus Aid, Relief, and Economic Security (CARES) Act, with the indexes rising by 7.3%. Furthermore, 10-year U.S. To add on, treasury bond earnings have fallen to 0.67%. The radical deterioration in the worldwide stock markets has aggravated an unpredictable situation with dire liquidity levels.
Conclusion
Despite the various comparisons with the previous crises, there is still time for a corresponding universal course of action in response to the virus and its economic impacts. Humanity currently exists in a very different world paralleled with those facing former catastrophes such as the 1918 H1N1 Virus. Nonetheless, it is crucial to come into terms with the fact that the economic decline has augmented the unemployment rate by approximately 2%. For example, in the United States, the percentage of retrenched workers is 10.4%, according to the I.M.F. (Jones, 2020).
Overall, the potential impacts of this crisis are larger than any previously seen in history. Contingent on the economic make-up of each country, COVID-19 will adversely impact some countries more than others. For example, citizens of countries with service-oriented economies are more distressed and have more professions being jeopardized due to the 90% disruption of activity. Significantly, China has a crucial influence on the momentum at which the economy can readjust. Despite the fact that it has been said that the coronavirus has sunk the world into what is called a “crisis like no other,” there is still hope on the other hand. It has been forecasted that global growth could still rise to 5.8% in the year 2021 if the pandemic dwindles between now and December this year (Jones, 2020).
References
Assessment, O.I.E. (2020). Coronavirus: The world economy at risk. Organization for Economic Cooperation and Development, 1-18. https://michaelmeuser.com/download/coronavirus-economy.pdf
Baldwin, R., & di Mauro, B.W. (2020, March 26). Economics in the Time of COVID-19. London: Centre for Economic Policy Research.
Barua, S. (2020). Understanding Coronanomics: The economic implications of the coronavirus (COVID-19) pandemic. SSRN Electronic Journal https://doi org/10/ggq92n, 1-45. https://mpra.ub.uni-muenchen.de/99693/1/MPRA_paper_99693.pdf
Bhosale, J. B., & Bureau, E.T. (2020, March 19). Prices of agricultural commodities dropped by 20% post-COVID-19 outbreak. Retrieved from The Economic Times: https://economictimes.indiatimes.com/news/economy/agriculture/prices-of-agricultural-commodities-drop-20-post-covid-19-outbreak/articleshow/74705537.cms?from=mdr
Bonaccorsi, G. P., Pierri, F., Cinelli, M., Flori, A., Galeazzi, A., & Porcelli, F. (2020). Economic and social consequences of human mobility restrictions under COVID-19. Proceedings of the National Academy of Sciences, 117(27), 15530-1553, 1-6. https://www.pnas.org/content/pnas/117/27/15530.full.pdf
Eichengreen, B. (2020, March 12). Coronanomics 101: which policy tools will contain the economic threat of COVID-19? Retrieved from World Economic Forum: https://www.weforum.org/agenda/2020/03/coronavirus-economics/
Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. SSRN 3557504, 1-30. https://foroparalapazenelmediterraneo.es/wp-content/uploads/2020/03/SSRN-id3557504.pdf.pdf
Jones, L. (2020, June 30). Coronavirus: A visual guide to the economic impact. Retrieved from B.B.C. News: https://www.bbc.com/news/business-51706225
Knieps, S. W., & Woche, W. (2020, March 17). Will COVID-19 turn Germanys export-oriented economy into a weakness? Retrieved from Euractiv: https://www.euractiv.com/section/economy-jobs/news/will-covid-19-turn-germanys-export-oriented-economy-into-a-weakness/
Mckinsey. (2020, July 27). The coronavirus effect on global economic sentiment. Retrieved from Mckinsey & Company: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-coronavirus-effect-on-global-economic-sentiment#
Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M., & Agha, R. (2020). The socio-economic implications of the coronavirus and COVID-19 pandemic: a review. International Journal of Surgery, 185193. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7162753/
Petro, G. (2020, March 20). The Coronavirus Tsunami: Whats To Come For U.S. Retail. Retrieved from Forbes: https://www.forbes.com/sites/gregpetro/2020/03/20/the-coronavirus-tsunami-whats-to-come-for-us-retail/#789472a609df
Staff, R. (2020, March 13). World travel may shrink 25% on coronavirus in 2020, shed 50 million jobs – WTTC. Retrieved from Reuters: https://in.reuters.com/article/instant-article/idCAKBN2101F2
UNIDO. (2020, July 10). Coronavirus: the economic impact July 10 2020. Retrieved from United Nations Industrial Development Organization: https://www.unido.org/stories/coronavirus-economic-impact-10-july-2020
