The COVID-19 outbreak has triggered a world economic disruption of significant magnitude with an escalating pace, resulting in steep recessions in many countries. The COVID-19 pandemic has caused an unprecedented global economic impact at an astonishing rate, leading to rapid economic downturns in many countries. Despite exceptional policy support, the baseline forecast envisages a 5.2 percent decline in global Gross domestic product (GDP) in 2020, the deepest global recession in eight decades. With the widespread social-distancing initiatives, sharp contractions of financial conditions, a slip down in foreign demand depress activity is observed. Advanced economies are expected to shrink by 7 percent. In 2020, Emerging Markets and Developing Economies (EDME) GDP was predicted to contract by 2.5 percent. News findings present a dismal picture of the number of affected supply chains. With more than 90% of EMDEs indicated to encounter per capita income contractions this year, several thousands of people are likely to slip back into poverty. The global economy is undoubtedly lead to a halt with the outbreak of coronavirus.(1)
The economics of the pandemic: shocks and spillovers
Demand shortfalls – Although initiatives adopted by the government, consumers, and enterprises to minimize social interaction have been crucial in reducing the spread of the virus; economic activity has dramatically disrupted in the first half of the year, losing a significant share of private consumption involving social interaction. In several model-based projections of the pandemic’s impact, declining consumption of goods and services has been critical drivers of lost production.
Disruption in supply: According to the ILO, labour supply has decreased due to travel and human interaction restrictions, employees’ and family members’ illnesses, and school closures. Staff employed at home have been encouraged or advised to do so in many nations. Still, in EMDEs, fewer jobs can be performed remotely than in advanced economies, partially due to more restricted internet access. Operational challenges for companies have been caused by delays in input deliveries and limited access to finance, compounded by increased reliance on global supply chains.
Global spillovers to EMDEs: These disruptive demand and supply fluctuations have resulted in multi-channel cross-border spillovers of EMDEs-real channels, including disturbances in global trade, supply chains, travel, tourism, and financial media, including steep declines remittance flows and massive outflows of capital amid a March flight to protection. The sudden drop in demand, and with oil the most affected, has depressed commodity prices. By plunging confidence and confusion, these cross-border spillovers have been exacerbated. (1)
Impact on GDP
According to IMF 2020 estimates, global GDP growth for 2020 was projected to be 1.6 percent, a figure that was 2.9 percent in 2019.(2) The United Nations Conference on Trade and Development estimated that the virus’s spread 2020 could cost the global economy up to $2 trillion. The pandemic could cause a recession in some countries, causing global economic growth to fall below 2.5%. Ever since 1870, the global economy has experienced 14 global recessions. Current projections suggest that the worldwide recession of COVID-19 would be the fourth deepest and most extreme since the Second World War during this time. It is estimated that per capita output contractions are involved in an unprecedentedly high proportion of countries.(3)
Impact of pandemic on primary, secondary and tertiary sectors
Primary sectors:
Agriculture: A global market downturn for hotels and restaurants has seen agricultural product prices plunge by 20 percent in 2020. The supply chains have failed to operate accurately, and vast amounts of food have started to be wasted, resulting in substantial losses for Indian farmers.(4)
Petroleum and oil: The oil-price war is expected to have significant consequences for the global economy in the light of the pandemic, which is already dampening oil demand.(4)
Secondary sectors:
Manufacturing industry: Due to the instability of supply chains and self-isolation policies, import problems and personnel shortages stood out as the main challenges for companies.(4)
Tertiary sectors:
Education: UNESCO reports that the closing of educational institutions has impacted up to 900 million students. COVID-19 has affected social mobility, with schools no longer being able to afford free school meals, social exclusion, and school dropout rates for children from low-income families.(4)
Healthcare: For healthcare systems worldwide, the COVID-19 pandemic has caused an unparalleled problem. One of the most significant drawbacks in healthcare systems worldwide is the risk to healthcare staff.(4)
Pharmaceutical industry: Opportunities have concurrently arisen for companies involved in vaccine and drug production.(4)
Hospitality, tourism, and aviation: Currently, the tourism sector is one of the hardest hit by the COVID-19 outbreak, affecting travel supply and demand. The World Travel and Tourism Council have warned, as a direct consequence of COVID-19, which 50 million jobs in the global travel and tourism sector could be at risk. It is projected that if the COVID-19 pandemic continues into the second quarter of 2020, Vietnam’s tourist industry will experience a $5billion loss. The Asia Pacific Aviation Centre (CAPA) has assessed that the Indian aviation industry will report staggering losses worth almost $4 billion this year. (4)(5)
Although in 2021, current vaccine arrangements have raised expectations of a turnaround concerning the economic impact later this year. However, renewed surges as well as the new variants of the virus pose problems for the viewpoint. Amid the sparse uncertainty, the global economy is forecasted to rise 5.5% in the year 2021 and to 4.2% in 2022.(2)
Upasna Gaba is a pharmacist and currently a postgraduate student pursuing Masters of Public Health (Health Policy) at Prasanna School of Public Health, Manipal Academy of Higher Education (MAHE), Manipal, India.
Dr. Antara Sharma is a dentist and currently a postgraduate student pursuing Masters of Public Health (Health Policy) at Prasanna School of Public Health, Manipal Academy of Higher Education (MAHE), Manipal, India.
Dr. Swati Sapna is a dentist and currently a postgraduate student pursuing Masters of Public Health (Epidemiology) at Prasanna School of Public Health, Manipal Academy of Higher Education (MAHE), Manipal, India.
References:
- Global Economic Prospects [Internet]. World Bank. [cited 2021 Feb 25]. Available from: https://www.worldbank.org/en/publication/global-economic-prospects
- World Economic Outlook [Internet]. IMF. [cited 2021 Feb 25]. Available from: https://www.imf.org/en/Publications/WEO
- Impact of COVID-19 on the global economy – The Hindu [Internet]. [cited 2021 Feb 25]. Available from: https://www.thehindu.com/business/impact-of-covid-19-on-the-global-economy/article31180826.ece
- The socio-economic implications of the coronavirus pandemic (COVID-19): A review – ScienceDirect [Internet]. [cited 2021 Feb 25]. Available from: https://www.sciencedirect.com/science/article/abs/pii/S1743919120303162
- Rakshit D, Paul A. Impact of COVID-19 on Sectors of Indian Economy and Business Survival Strategies [Internet]. Rochester, NY: Social Science Research Network; 2020 Jun [cited 2021 Feb 25]. Report No.: ID 3620727. Available from: https://papers.ssrn.com/abstract=3620727
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