Impact of COVID-19 on global economies

 

Economies around the world are suffering to survive the pandemic. Coronavirus reached almost every place around the world causing economies and businesses to suffer beyond repair. Governments are struggling to keep the economy running with the new lock-downs to tackle the spread of the virus. Even though several vaccines are available and have proven to be effective against the virus but experts are still contemplating a long and difficult recovery.  

 

Not Just a Healthcare Crisis

Since the start of COVID 19 which is almost a year, it has nearly affected 200 plus countries across the globe. COVID 19 has hit economies throughout the world. It is greater than just a mere healthcare crisis rather it has caused developing economies to contract significantly. There is no parameter to predict the damage the economies around the world have suffered but economist from around the world agrees that the novel coronavirus has badly impacted the global economies. Rough estimates in the past predicted that many of the world’s largest economies will suffer the loss of at least 2.4% of their Gross Domestic Product value. However, these estimates were made before the novel coronavirus became a pandemic and before serious lockdowns were implemented to discourage the social contact of people.

The major cause of damage on global economies is due to the differences in supply and demand of the goods. This meant that there were not enough buyers to buy the goods available in the market hence the fall of economies.

 

Changes in GDP in comparison to 2019-2020:

UK -11.5%, France -11.4%, Italy -11.3%, Spain -11.1%, Euro area -9.1%, Russia -8%, Canada -8%, Brazil -7.4%, US -7.3%, Germany -6.6%, Japan -6%, India -3.7% and China -2.6%

America is the country that has been impacted significantly due to the novel coronavirus global pandemic. Due to the coronavirus pandemic, the employment sector is severely hit in the US which was 2.7 percent to approximately 14.7 percent. The business has also been severely hit by the pandemic. The resulting enclosure of some big and some small scale businesses.

 

Impact on Travel and Tourism Industry

Travel Industry was majorly affected by the pandemic due to the border and air space closure because many countries restricted travel to curb the spread of the virus. Previously this sector was experiencing major and continued growth around the world. Tourism was a major factor for the growth of the biggest economies in the world, with countries spending billions of dollars for the development of tourist destinations. The contribution of the tourism industry to the global gross domestic product is estimated at 8.9 trillion dollars in2019. However, the record-breaking growth was suspended by the global pandemic in 2020. The measures are taken by countries to stop the spread of the virus majorly affected the airline companies because there were not many people to buy tickets for business trips or holidays. As a result, the airline companies had to cancel flights to reduce the expenses. Eventually, many of the companies had to wrap-up their business because they no longer can survive. This sector was most affected by this global pandemic.

Here is the list of some of the airline companies that could not survive the pandemic.

Avianca Holdings: Avianca is the second-largest airline company in South America; it survived in the great depression but could not hold itself in this global pandemic. Avianca filed for bankruptcy protection in May but it will continue to fly.

LATAM: The biggest company to file for US bankruptcy protection in May is no one but LATHA. It is the largest airline company in Latin America. Like Avianca, LATHAM will continue to fly during restructuring.

Virgin Australia: Virgin Australia is Australia’s second-largest airline company operating for almost 20 years. The company filed for bankruptcy restructuring last year. This is Australia’s largest company ever to file for bankruptcy.

 

Downward Spiral Economy

The same issues happened with other industries, for example, the oil prices came down because the daily commute was restricted and there was no social gathering to tend the demand was reduced significantly. The company started to lay off its employees to make up for the lost revenues the economist are predicting a chain of events leading towards a downward spiral economy because the unemployed people will no longer be able to afford other goods that were still not affected in this pandemic. The economists are worried that this global pandemic might lead to a recession just like the Great depression.

COVID caused an unprecedented disturbance in the fast-growing and rapidly transforming markets of European countries. It stopped mobility among people and caused the most significant damage to economies than ever witnessed. Due to the ongoing pandemic in the world mobility in and out was greatly contracted due to the global restriction being imposed and greatly due to the restrictions being imposed due to lockdowns and social distancing measures being adopted by the countries. 

Tourism was majorly affected in European countries due to the sudden closure and imposition of lockdowns in the countries. Oil demand also came down significantly due to the strict lockdowns as the economic activity was at standstill and there was no traveling so much so that at one point the price of oil went negative.

 

Impact on developing economies

Coronavirus poses a greater threat to the world economies than any time before experienced. Trades have severely been affected due to the COVID 19 and as the governments in the Asian economies were not investing for the development of the healthcare system therefore Asian countries were at greater risk due to a fragile healthcare system. As the borders closed there was a food crisis in the region. Pakistan and India both suffered huge losses due to the lockdown imposed, the crisis was not because they had to impose lockdown in their region but because of the closures of borders of other countries also. Overseas citizens suffered the loss of jobs and because of that country’s remittance stopped which was one of the primary reasons for lesser foreign reserves in the country. The rate of inflation is increasing at a rapid rate in the developing countries whereas rates of daily commodities are reaching shy high levels. The impact of COVID 19 was multi-dimensional it not only affected the countries with high rates of infection but also those countries with fewer cases due to closure of the travel, logistics, and production worldwide. The developing countries were already struggling to keep up their GDP; this pandemic has come as a shock for the struggling economies and has hit them even harder than the rest of the world. The only country in the world that continued to grow in the viral pandemic is no one but China. Despite being the place of origin of global pandemic China experienced a growth of 2.3 percent in the GDP.  

 

The Sector that Experienced Growth during the pandemic

Pharmaceutical companies are among the winners in the pandemic. The increasing use of face masks and gloves increased the demand but most importantly the demand for the medicines increased. People fearing the shortage of flu and cold medicines stocked it causing an increase in their process. 

Governments around the world invested heavily in pharmaceutical companies to get the vaccine made as soon as possible. Companies that were involved in the development of the vaccine experienced growth in their stock market shares. AstraZeneca, Moderna and Novavax have seen significant rises. Pfizer’s share prices have seen a fall. The reason for the fall is because of its partnership with BioNTech and the high cost of vaccine production. Recently the competition in the sector has increased tremendously causing the investors interest in the company to divert.  

 

The silver lining

Despite all the troubles the global economies are suffering there is some hope that governments can avoid the worst situation. The previous recessions have taught governments the lessons to minimize the effects of demand-driven recessions with countered government spending. Most governments around the world are offering their support to their citizens with monetary welfare, making sure that businesses have the access to government funds needed to support their business and to keep the staff employed in the global pandemic. There is always something that gives you hope even in the darkest situation and this time the sector that gave hope to economies around the world were food retail, e-commerce, and the health care industry. These industries provided something at least to keep the economies going and gave hope for a better tomorrow

Everything in the world comes with an expiry date although we do not know the date of expiry of this pandemic yet there is hope with the vaccines coming into the market that all the restrictions could be lifted and that the world could go back to its normal working soon. Keeping the rapid development and increased production of different vaccines in mind it will not be wrong to say that the global economies will experience strong growth once the pandemic is over.   

By: Faiqa Khalid

Roll no: 41