COVID-19’s Impact on the Global Economy
The novel COVID-19 pandemic is sparking panic in markets and dominating the news. While the primary focus has been on its health risks, experts have started to worry about how a prolonged outbreak will impact the global economy.
Measuring the Impact of COVID-19
Much about the COVID-19 remains uncertain. Because of this, caution is required when trying to measure its impact on the global economy. Not only is there a limited visibility on the path of the Coronavirus itself, but the list of previous comparable pandemics is also short.
Many studies compare the COVID-19 with the SARS epidemic that occurred in 2002-03. However, this comparison is misleading because the relative importance of China in the global economy has significantly increased in the past two decades. What’s clear is that the global economy remains fragile and many factors like increased populism and rising geopolitical tension between the West and China make the worldwide economy vulnerable to shocks like COVID-19.
Global Economic Impact
There are there main ways Coronavirus is predicted to affect the global economy i.e. by affecting the production directly, by creating market and supply chain disruption, and by impacting financial markets and firms financially.
- Direct Impact on Production
Because of the shutdowns in many of its areas, Chinese production has been significantly affected. Some other countries are already starting to feel its impact. The slowdown in production in China is affecting its exporters e.g. Japan, Korea, as well as other countries. And even if there are no new outbreaks of COVID-19, these areas are expected to have a slow growth in 2020.
- Market and Supply Chain Disruption
Many manufacturing businesses depend on imported intermediate inputs from China as well as various other countries that are currently affected by Coronavirus. Many firms also depend on sales in China in order to meet their financial goals. The transportation restrictions as well as the slowdown in economic activity in affected countries are expected to have an impact on the profitability of certain global companies, especially in manufacturing.
For companies that depend on intermediate goods from affected countries, and that are unable to switch sourcing, the size of the economic impact may rely on how quickly the pandemic fades. Many industries will have difficulty surviving the disruption. Tourism and travel industries will particularly face loses that are likely unrecoverable. Education institutions may also be affected even though many of them are already shifting to online learning, for example, JC economics tuition online.
- Financial Impact on Financial Markets and Firms
Temporary disruptions and slowdowns of inputs and/or production are already stressing some firms, especially those with insufficient liquidity. In financial markets, traders may or may not correctly understand or anticipate which firms might be vulnerable. A possible outcome would be a huge financial market disruption as participating firms become concerned about the counterparty risk. Experts also predict that corporate bond markets and equity markets will see a significant decline.
Although it’s difficult to determine how exactly the COVID-19 will impact the global economy, it’s pretty clear that it will be pervasive and substantial. Investors and financial experts are closely watching the impact of the pandemic on world markets and some of them fear that the worst is yet to come. Even if the spread of the virus is curtailed, it’s global impact on the economy will be long-lasting. However, a great deal of it depends on the public’s reaction to the disease. More understanding on this topic could be garnered through econs tuition courses.