Effects of Coronavirus on the Global Economy

Last Updated: September 27, 2020

Effects of Coronavirus on the Global Economy

Coronavirus caught the world unawares, with many speculations as to its cause, and its effects have been profound both positive and negative. The sudden economic disruption is disruptive but also has residual effects as an aftermath with national budgets revised to accommodate COVID-19. New cases continue to be recorded every day with several countries such as the USA and Italy being the worst hit. The sectors in the global economy that were mostly affected are trade, supply chains, and asset prices, and the virus created a change in the outlook of the economy.

Some countries have had to shut down the daily activities to stop the spread of the virus leading to little or no growth in their economies. Lockdowns have resulted in a reduction in production, causing significant disruptions in the supply chain globally. For example, China called for a closure of all its industries, leading to a stop in production. According to WHO, global trade could fall by up to 32% because of COVID-19. Exporters and importers will be profoundly affected by a lack of market and raw materials, respectively.

Restrictions on travel, cancellation of global events like sports, and mass gatherings were put in place to curb the spread of the virus. In turn, airlines, cab companies, and other sectors that largely contribute to the global economy came to paralysis, with only essential services being operational. Travel between countries became difficult for airlines, which had to fly almost empty, leading to losses. A spillover effect of travel is on the tourism sector, which has lost over $200 billion and still counts, mainly because the world is more compact than before. The hospitality industry was greatly affected, with numerous meetings canceled due to the tourism sector’s effects, as the closure of hotels and casinos took effect. It has resulted in the compulsory leave and laying off of people after the shut down of companies and industries.

Consumption patterns of customers have also changed with empty stores at the onset of the virus being a common phenomenon, created by panic shopping and stocking products in case of prolonged periods of the coronavirus. Previously, many people frequently visited places such as shopping malls, going about their daily tasks. However, with the onset of the virus and lockdowns, people are limited to their homes.

The effect on restaurants and shopping centers has been great, with their revenue decreasing by significant amounts. The equity market was primarily affected, dropping up to 30% in the European Union and the United States. It occurred mainly after the spread of COVID-19 from China to Europe and the US. It has led to a drop in stock value and shares due to economic uncertainty after collapsing in March 2020, witnessing low patronage by consumers.

The stock market, between 23rd to 28th February, lost $6 trillion. The Dow Jones index, for example, experienced the most significant drop recorded in one day, with some companies registering a decline of up to 80%. The effects on banks and other financial institutions have been profound, with a decrease in bank transactions and an increase in non-performing loans, which lead to the collection of fewer fees contributing to significant losses.

Some other sectors affected by COVID-19 were the oil and gas industries, which plunged due to a drastic drop in oil consumption. Oil prices continue to decrease daily, with an average of 50%. The situation began after an oil price war between Russia and Saudi Arabia at the beginning of the year, with conditions worsening after the virus hit due to travel restrictions. Many hard-hit countries mainly depended primarily on oil as an export by the loss of revenue caused by low demand for oil.

However, not all effects of the virus are negative. The environment for one has seen a positive change. The presence of clear skies and little pollution from cars, airplanes, and greenhouse emissions has led to a clear environment. Also, with the restriction of movement, fewer infectious diseases are recorded as the likelihood of contamination through interaction is minimal. Lastly, the world has experienced an increased level of awareness of the global impact of the virus. People are now conscious of their actions thereby helping them to come together in times of a crisis.

The economy has become volatile, primarily because of other contributing triggers such as banking and debt crises. The drop in the UK economy, for example, has been affected by BREXIT and made worse by the pandemic. The recovery process could take a bit longer after the shutdowns, with some countries now allowing free movement of people. Impacts will also be felt differently in different countries, with some more affected than others, due to the unequal distribution of the economic cost of the impending recession.

 

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