COVID-19 Impact on the World Economy

By Ahsaas Verma

An Introduction to COVID-19

On 24th March, 2020, India went into a nationwide lockdown after the speech of the honorary Prime Minister Narendra Modi at 8 PM. With only four hours to get their business into order, the country was caught by surprise similar to the announcement of Demonetization on 8th November, 2016. The ongoing lockdown, in the wake of pervasive COVID-19, has affected the lives of many vulnerable and underprivileged sections of the society across the country.

Caused by “novel coronavirus”, earlier unfamiliar to humans, COVID-19 can be identified by symptoms like – fever, dry cough and breathing difficulty accompanied with pains, congestion, runny nose, sore throat and/or diarrhea. Allegedly spread by droplets produced by sneezing/coughing, or coming in contact with a human or a surface carrying the virus, COVID-19 (or CoronaVirus) has seen about 4,500 cases as of today (07th April, 2020) in India. The global number stands at about 1.4 million cases with close to 75,000 deaths and 3,00,000 recoveries.



Economic Effects

The speeding spread of the pandemic has caused huge amounts of economic damage, so much so that the question of recession does not revolve around ‘if’ anymore, but around ‘the depth’ with which the pandemic has hit the globe. A member of the US Federal Reserve was quoted saying that the second quarter of the year will bring 30% unemployment, shrinking the economy by half (at least temporarily). Brad McMillan, CIO, Commonwealth Financial Network said, “The thing that will matter the most is confidence. What’s shaking the market right now is the fear that it is going into long term damage and the economy is going into the ground. To some extent this can become a self-fulfilling prophecy.”


Stock Market

With the turbulent stock markets, governments are taking different measures to tackle the situation. For instance, most western governments are pouring money into the economy.  In the year 2008, over the course of 517 days, the stock market depreciated 56.8% on a global level. It was regarded as the worst year since the Great Depression, in terms of economy. In the year 2020, the global market dropped by 20% in 21 days (16th March). The world has literally shut down.


The Origin – Virus & Economic Slowdown

The virus is believed to have started in Wuhan, China in December, 2019. The country shut down many of its factories to curb the spread, but that had an adverse effect on the world because China is the manufacturer of 1/3rd of global products making it a ‘global supply chain’. Hence, delay in production of products from China does have an impact on the world. The slowdown in the economy creates a slowdown in sales and revenue of many companies in and around China. As an example we can look at the Automobile industry, which is dependent on tools, dye and machinery in order to manufacture cars. But each of these markets are experiencing a 1-3 month delay (currently), because of the Chinese shutdown of the manufacturing sector. This means that cars won’t be able to launch new annual vehicles on time, therefore missing out on billions of dollars’ worth of sales. There is an 80% drop in automotive sales in countries like China. The drop in companies sales and revenue will lead to a drop in sales and revenue of their suppliers and further extending to raw industries & other associations.


The Ill Effects

These falls inevitably lead to layoff and bankruptcy, therefore lesser employment or lesser purchases by the consumers.  When we talk about India, a country that has already seen an unemployment high since the Modi government, we understand that Demonetisation and GST resulted in killing demand, and this poorly planned national curfew can kill supply chains. We might be left with the great Indian discovery, the zero. Meanwhile, lakhs of trucks are stranded on state borders. Supply chains for the most essential items have been disrupted, including medicines, milk, groceries, food and newspaper deliveries. Nobody in the prime minister’s office seems to be aware of any such thing as crop harvesting, or the Rabi season, as farmers wonder how they’ll do it amid this national curfew.

Around the world, economies are crumbling. The prices of all vital commodities have fallen. This indicates our under preparedness as a species for pandemics like this. The biggest stock markets in the world have turned ‘red’ in the past two months. This is because the investors have to re-calculate the future of the economy and therefore the market begins to fall. This leads to selling of liquid assets.

The crisis has been quick because it has been a shock. The industries that are hit the hardest are those relating to the consumers including retailing, entertainment, hospitality – hotels & restaurants etc.

These industries face a lot of continuous cost cutting and no revenues at all.


What Future Holds?

If a business isn’t affected by the economy directly, the lockdown’s seem to have a ripple effect. Since a lot of industries rely on goods & materials crossing borders, and the inability to do so causes ‘production’ to be in danger.  The true impact of the COVID-19 outbreak will be understood once the recovery starts. A quicker and stronger recovery would lead to lesser loss to the economy. What is still unclear to the economists around the world is what kind of recession COVID-19 will cause –

  • A V-Shaped recession

In which economy suffers a rapid fall, but rebounds quickly

  • An L-Shaped recession or

It is a long term-recession (one which is the most undesirable to humankind)

  • A U-Shaped recession

It takes longer to rebound from a longer economic trough

China, the country that was hit first and started to show recovery, suggests that there can be a V-shaped recession. It can be considered a ray of hope in the dark. Economies can ape China, if it can show early and positive growth against the pandemic. Specially Europe and America have seen unprecedented government responses by attributing hefty amounts in relief funds for the pandemic. Even India is replicating the same. These measures might cushion economies for some time. The more difficult question for the governments will be to trade off the lives of CoronaVirus patients versus the economic damage to the markets. Like a longer lockdown would lead to greater economic damage. This can be protected by lifting lockdowns but that would lead to millions of extra deaths. In a way the current lockdowns reflect the human side of economies since we understand and are willing to take a hit rather than letting people die of the world pandemic.


In Conclusion

The International Monetary Fund (IMF), predicts that the global GDP will be at 1.6% for 2020, from a 2.9% in 2019. The UN Conference on trade and development said that the outbreak can cause the global economy up to $2-trillion this year. India’s pharmaceutical, automobile, pesticides and mobile phone industries automatically wobbled due to shut-down of the Chinese market. Indian gems and Jewellery makers expect a loss of about $1-billion. The software market also is making slow progress due to the lockdown. Where International events like the Olympics, NBA, IPL, UEFA, Summer games, Formula-One, Tennis associations etc. have been postponed along with a halt in the entertainment industry, the other industries like medical supplies, soaps and sanitizers demand has risen. Digital platforms have started to gain more traction in terms of OTT, online gaming platforms, online learning etc.


As consumers or as general public what we can do right now to secure ourselves is

  1. Stay home and stay safe.
  2. Follow the Instructions given by the Government
  3. Wait and watch and take precautionary measures.


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