Economic Impact of COVID-19 around the world

April 11, 2020
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Latest developments:

  • More than 6.6 million Americans filed unemployment claims last week, for the second week in a row.

  • The US Federal Reserve unveiled plans to provide $2.3 billion in loans to small and midsize businesses, as well as cities and states.

  • The economic downturn is expected to be worst recession since the Great Depression, the IMF says.

With more than 1 million confirmed cases of the COVID-19 coronavirus worldwide, businesses are coping with lost revenue and disrupted supply chains as factory shutdowns and quarantine measures spread across the globe, restricting movement and commerce.

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Unemployment is skyrocketing, while policymakers across countries race to implement fiscal and monetary measures to alleviate the financial burden on citizens and shore up economies under severe strain.

The International Monetary Fund on 9 April said the coronavirus pandemic had instigated an economic downturn the likes of which the world has not experienced since the Great Depression.

Here are some of the ways the outbreak is sending economic ripples around the world.

Global financial shocks

As the world grapples with the coronavirus, the economic impact is mounting – with the G20 Finance Ministers and Central Bank Governors having a conference call on 23 March to discuss how to address the emergency.

The International Monetary Fund’s Managing Director Kristalina Georgieva issued a statement following the call, in which she outlined the outlook for global growth:

“For 2020 it is negative – a recession at least as bad as during the global financial crisis or worse.”

But she added: “We expect recovery in 2021. To get there, it is paramount to prioritize containment and strengthen health systems – everywhere.”

The Organisation for Economic Co-operation and Development warned on 23 March that the shock from the virus is already bigger than the 2007-2009 global financial crisis.

OECD secretary general Angel Gurría said many countries would fall into recession and countries would be dealing with the economic fallout of the COVID-19 pandemic for years to come.

“Even if you don’t get a worldwide recession, you’re going to get either no growth or negative growth in many of the economies of the world, including some of the larger ones, and therefore you’re going to get not only low growth this year, but also it’s going to take longer to pick up in the in the future.”

This statement comes after the United Nations Conference on Trade and Development, the UN trade agency, warned of a slowdown of global growth to under 2% this year, effectively wiping $1 trillion off the value of the world economy.

In the vein, the Asian Development Bank on 3 April warned that the global cost of the outbreak could hit $4.1 trillion. The extent of the economic damage still depends on how the virus spreads throughout Europe, the US and other major economies, reports Bloomberg.

Predicted slump for China

China is the world’s second-largest economy and leading trading nation, so economic fallout from the original COVID-19 epicentre will be critical to watch.

Economists polled by Reuters on 3-5 March said the outbreak likely halved China’s economic growth in the first quarter of the year, compared with the previous three months.

The poll of more than 40 economists, based both in and outside mainland China, forecast growth to fall to a median of 3.5% in the first quarter, from 6.0% in the fourth quarter of 2019, a full percentage point lower than predicted in a 14 Feb poll.

The Chinese economy is likely to be hit further by reduced global demand for its products due to the effect of the outbreak on economies around the world.

Data released on 16 March showed China’s factory production plunged at the sharpest pace in three decades in the first two months of the year – something which could mean an even greater economic slowdown than predicted in that poll.

Monetary policy: central banks act but stocks, oil continue to come under steep pressure

To combat the economic fallout, the US Federal Reserve on 15 March cut its key interest rate to near zero.

But the move, coordinated with central banks in Japan, Australia and New Zealand in a joint-effort not seen since the 2008 financial crisis, has failed to shore up global investor sentiment. As of 9 April, the S&P 500 stock index is down more than 13% since the start of the year, while global oil prices have plummeted more than 47% year-to-date.

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The Fed on 9 April unveiled a new batch of programs, saying it plans to provide $2.3 billion in loans to small and midsize businesses, as well as US cities and states. The US central bank also expanded its corporate lending program to include some classes of riskier debt.

Meanwhile, the European Central Bank (ECB) also took action, launching on 18 March a €750 billion Pandemic Emergency Purchase Programme that is expected to last until the end of this year.

A fiscal response

On 20 March, the UK announced radical fiscal spending measures to counter the economic impact of a worsening crisis. The government said it would pay up to 80% of the wages of employees across the country unable to work, as most businesses shut their doors to help fight the spread of coronavirus.

Earlier in the month, the Danish government announced it would help private companies struggling to manage the fallout from the pandemic by covering 75% of employees’ salaries, if firms agreed not to cut staff.

Meanwhile, the US Senate on 25 March approved an unprecedented $2 trillion stimulus plan, including direct payouts to millions of Americans. The House of Representatives is expected to pass the rescue package on Friday.

The impact on employment

More than 6.6 million Americans filed new claims for unemployment benefits in the week ending 4 April, according to US Department of Labor data released on 9 April, bringing the total number of Americans who have lost their jobs in just three weeks to over 16 million.

Image: US Department of Labor/New York Times

Data from Spain shows nearly 900,000 people have lost their jobs since its lockdown started in mid-March. The official unemployment figure has risen to 3.5 million – the highest level since April 2017.

Meanwhile, Bloomberg reports that around half of jobs in Africa are at risk as a result of the outbreak, according to the United Nations Economic Commission for Africa.

Impact on air travel

On 5 March – before the US travel ban was announced – the International Air Transport Association (IATA) predictied the COVID-19 outbreak could cost airlines $113 billion in lost revenue as fewer people take flights.

“The industry remains very fragile,” Brian Pearce, the IATA’s chief economist, told the Associated Press. “There are lots of airlines that have got relatively narrow profit margins and lots of debt and this could send some into a very difficult situation.”

On March 16, British Airways said it would cut flying capacity by at least 75% in April and May. Other UK airlines, including Virgin Atlantic and easyJet also announced drastic cuts.

The travel and tourism industries were hit early on by economic disruption from the outbreak.

Besides the impact on airlines, the UN’s International Civil Aviation Organization (ICAO) forecast that Japan could lose $1.29 billion of tourism revenue in the first quarter due to the drop in Chinese travellers, while Thailand could lose $1.15 billion.

Disruption to commerce

The initial shortage of products and parts from China affected companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home to help reduce the spread of the virus.

What is the World Economic Forum doing about epidemics?

Epidemics are a huge threat to health and the economy: the vast spread of disease can literally destroy societies.

In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines against emerging infectious diseases and to enable access to them during outbreaks.

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Our world needs stronger, unified responses to major health threats. By creating alliances and coalitions like CEPI, which involve expertise, funding and other support, we are able to collectively address the most pressing global health challenges.

Apple’s manufacturing partner in China, Foxconn, faced production delays. Some carmakers including Nissan and Hyundai temporarily closed factories outside China because they couldn’t get parts.

By March, countries such as Italy had closed all but the most essential factories.

The pharmaceutical industry, bracing for disruption to global production since February, reported fears of drug shortages as India faced lockdowns 24 March. India supplies nearly half of the generic drugs for countries such as the U.S.

Most trade shows, cultural and sporting events across the world have been cancelled or postponed.

[World Economic Forum]



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