How Covid-19 Has Affected Global Economy?

The Covid-19 pandemic has spread rapidly, infecting millions of people and halting economic activity as countries imposed various restrictions to stop the virus from spreading further. The economic impact expected to be long-term damage reflects the world’s most significant economic shock in decades. The pandemic has brought the global economy to a sudden stop, causing shocks to supply and demand. Nearly 90% of global economic activity has been affected by the coronavirus pandemic. Transnational trade links and supply chains have been disrupted, consumer demand has fallen, and millions of people have been left out of work. Unfortunately, these are the realities of the day.

Several countries worldwide implemented lockdowns during the coronavirus pandemic to “flatten the curve” of the infection. Millions of people were confined to their homes, businesses were closed, and almost all economic activity was suspended due to the lockdowns.

According to World Economic Forum (WEF) experts, the consequences of the coronavirus pandemic could jeopardize global economic growth in the next 3-5 years, according to World Economic Forum (WEF) experts. Furthermore, according to the WEF Global Risks Report 2021, released on January 19, 2021, as a consequence of the pandemic, social inequality could grow, and geopolitical stability could deteriorate over the next 5-10 years.

In particular, representatives of business and various social groups interviewed by experts expect that over the next 3-5 years, the pandemic will lead to such problems as speculative bubbles, price changes, debt crisis.

Now that some countries have lifted restrictions and are gradually restarting their economies let’s look at how the pandemic has affected the global economy since 2020. WEF has shared the graph below that shows how the seven largest countries’ economies have been affected by Covid-19 in the past year.

The Covid-19 pandemic’s financial consequences are primarily due to a drop in demand, which means that there aren’t enough customers to buy the goods and services available in the global economy. As an example, it can be seen from the tourism industry that has been heavily damaged. Due to lockdowns and travel restrictions, travel demand caused airlines to lose planned revenue; thus, they started cutting expenses, lay off staff. As companies begin cutting staff to make up for the lost revenue, it becomes a cycle since newly unemployed workers cannot anymore afford to purchase goods and services, further damaging the economy, reducing household consumption and firms’ investment.

The coronavirus pandemic has had a wide-ranging and severe effect on financial markets, including stock, bond, and commodity markets, including crude oil and gold. The oil price war between Russia and Saudi Arabia, which resulted in the collapse of crude oil prices and a stock market crash in March 2020, was a significant event.

Global stock markets plummeted to their lowest levels since 1987, and the G20 economies dropped 3.4% year on year in the first three months of 2020. According to the International Labour Organization, between April and June 2020, an estimated 400 million full-time jobs were lost worldwide, and worker income dropped 10% worldwide in the first nine months of 2020.

However, there are reasons to believe that the worst-case scenario can be prevented. Governments have learned from past crises that government spending will mitigate the effects of a demand-driven recession. As a result, many governments are increasing their monetary assistance to citizens and ensuring that companies have the funds they need to keep their employees employed during the pandemic.

Nevertheless, looking on the bright side, we can mention that pandemic has triggered growth in the digital and e-commerce sectors, raising e-commerce’s share of global retail trade from 14% in 2019 to about 17% in 2020. According to the UNCTAD report, online sales have increased by 6-10% across most product categories, with the most significant increases seen in IT and electronics, gardening and DIY, pharmaceuticals, education, household goods, and personal care products. Meanwhile, the e-commerce share in global retail in 2019 was $598 billion out of a total of $3780 billion; in 2020, it increased to $861 billion out of total retail of $4040 billion.

Besides, 88% of the organizations worldwide made it mandatory or encouraged their employees to work from home after the outbreak. After the pandemic, according to a Gartner survey of business executives, 80% expect to encourage workers to work at least part of the time remotely, and 47% plan to allow employees to work from home full-time. In a survey of 669 CEOs conducted by PwC, 78% agreed that remote collaboration is here to stay. According to research, workplace distractions cost companies $600 billion a year, and remote employees are 35 % to 40 % more productive than their in-office counterparts. Simultaneously, the public health crisis has created some new jobs in demand, such as Healthcare Jobs; Grocery Retail & Food Supply Chain Jobs; Customer Service Jobs; Tech & IT Jobs; Face Mask Sewers so on.

In the United States, GDP is forecast to increase by around 3.5% this year, after an estimated 3.6% contraction in 2020. The output is anticipated to grow 3.6% in the Eurozone, following a 7.4% decline in 2020. Activity in Japan, which shrank by 5.3% during 2020, is forecast to grow by 2.5% in 2021.

According to World Bank projections, aggregate GDP in emerging markets and developed economies, including China, will rise by 5% in 2021 after contracting by 2.6 % in 2018. Excluding China, emerging markets and developed economies are expected to grow by 3.4% in 2021, following a 5% contraction in 2020. In 2021, activity in low-income economies is expected to rise by 3.3% after a contraction of 0.9% in 2020.

Covid-19 has serious immediate human and economic costs, which have the potential to reverse years of progress in reducing global poverty and inequality and further erode social cohesion and international cooperation, which were already deteriorating before the virus.

The United Nations, on the other hand, is optimistic that the severe consequences of such a downturn can be mitigated by raising international cooperation to new heights. The UN argues that to recover from the crisis, attention should be paid to building a more robust global economic model, improving health and social protection systems, implementing green technologies, and fighting climate change.

How quickly and to what degree will the global economy recover after the pandemic has passed? About it, we will talk in our next article. For the time being, we can say that it will be dependent on the coronavirus’s containment and exit strategies, as well as the effectiveness of policies aimed at mitigating the virus’s negative economic effects.