Covid 19: The Tragedy of World Economy

Covid 19: The Tragedy of World Economy

Introduction


The world has entered the second decade of 21st Century with the alarming news of Coronavirus later known as the Corona Virus Disease of 2019 or COVID-19 (Renamed by World Health Organization) coming from the most populous city of Hubei province in China, Wuhan. Various facts that are derived at this point of time tells us that this virus belongs to the same Coronavirus family that caused the outbreak of Severe Acute Respiratory Syndrome popularly known as SARS in 2003 and the Middle East Respiratory Syndrome referred to as MERS in 2012. When we talk about the degree of deadliness it accounts to just 1% which is far behind MERS which approximated for 34% death rate or SARS with 10% death rate. Even with such low death rate, it is still viewed as a pandemic due to its high spreading rate which closely aligns with an exponential series.

The Context


What was widely seen as a "Chinese problem", and then an "Italian problem" has become an "Everyone's problem" now. In the initial stage, developed economies like the United States and Great Britain did not consider this as a serious issue and believed the law of markets (also referred to as the Say's Law) and the law of nature would automatically fix this pandemic by its own forces. Even though, there are still exceptions, like the authorities (govt.) of different countries initially have taken several measures to minimize the spread of this disease until sustained community transmission takes root. Then they imposed severe social distancing policies, shutting down the educational institutions like schools, colleges, universities etc. and introduced “work from home” protocol for various employees. This inevitably leads to immediate economic difficulties, leading the respective governments to propose increasingly bold measures against an unanticipated recession. On the other hand, some of the virus affected economies were already facing a demand deficiency (developing nations like India) , with this pandemic it would worsen the aggregate demand of these economies further. While the other countries which had pretty good demand too started witnessing a decline in the demand.

Impacts on Global Economy


The economic impact of Covid-19 is much deadlier than the virus itself. The main economic impact does not come from the rate of deaths, illnesses or the time one takes to recover. Rather, fear, stigma and discrimination are the main drivers of economic impacts. As per the new report from consultancy McKinsey & Company, major industries across the globe showed a negative value for the year-to-year weighted average of local currency shareholders return (measured in percentage). The most affected industries were the Commercial Aerospace industry (-47%), Oil & Gas industry (-44%) and Airline industry (-41%) as these industries showed a dip greater than 40%. Banks and other financial institutions were also affected by a huge margin. On the other side, consumer services (-5%) and retail industry(-10%) were affected the least, this might be due to the fact that even at the time of a pandemic people would demand for necessary goods, whatever the quantity be. The report also suggested a predicted figure of Real GDP Growth rate from 2019 to 2020 of China (-3.9%), USA (-3.9%), Eurozone (-12.2%) and Rest of the World (-6.25%), while all of which showed negative rates. This also suggests that the whole world is going through a period of recession.

Conclusion


The main challenge of effective control of this epidemic is to strike a balance between reducing viral transmission and the economic cost. If the public health response, including blocking and social distancing measures, is initially successful but cannot prevent a resurgence of the virus, the world will experience a "muted" economic recovery, says McKinsey. The major indicators that companies across the globe should look in-order to regain the lost momentum is to understand the variables that shift the demand for their goods for which they have to analyse the consumer spending on durable goods like electronic gadgets, cars etc and the behavioral shifts or changes in taste and preferences. Also, to identify the duration for which these shocks would last, the companies must analyse the trends in the stock market and the initial claims of unemployment. In this context, while the global economy would recover to pre-crisis levels by the third quarter of 2022, the US economy would need until the first quarter of 2023 and Europe until the third quarter of the same year.
Naveen Hari

Naveen Hari is an 21 year old student who completed his Bachelor's degree in Economics and Mathematics and currently pursuing his Master of Science degree in Economics from Shiv Nadar University, Delhi. He is the founder, developer and writer of this website. facebook instagram linkedin twitter

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