The COVID-19 viral pandemic remains a very personal, individual experience and an unparalleled internationally shared event with far-reaching consequences. The economic impact is already visible as the health, and human toll rises, and it constitutes the world’s greatest economic shock in decades. According to estimates, the virus lowered global economic growth in 2020 to an annualised rate of -3.4 per cent to -7.6 per cent, with a projected rebound of 4.2 per cent to 5.6 per cent in 2021. A recurrence of infectious cases in Europe, Russia, the United States, Japan, Brazil, India, and most of Africa has rekindled calls for lockdowns and curfews, threatening to undermine or postpone a potential sustainable economic recovery beyond mid to late 2021.
The economic repercussions from the pandemic have had a disproportionate impact on particular industrial sectors of the economy and certain demographic groups, and there is a danger of ongoing labour dislocations due to persistently high levels of unemployment not seen since the 1930s Great Depression. Workers rethink their career paths and work habits in certain circumstances, implying a post-pandemic economy with more diverse labour arrangements and a changing urban environment.
The impact on employment
Across major economies, unemployment has risen. The OECD predicted in July 2021 that the pandemic-related recession would lose 22 million jobs in OECD nations in 2020 and 114 million jobs globally, compared to 2019. As a result, millions of people have been placed on government-sponsored employment retention programmes, as sectors such as tourism and hospitality have ground to a halt.
Within countries, the employment and incomes of adolescents, women, and lower-skilled employees have been hit the worst. Almost 1.6 billion informal sector employees have experienced enormous harm to their ability to make a livelihood, out of a global total of two billion and a total workforce of 3.3 billion. This is owing to lockdown measures and the fact that they operate in the hardest-hit industries. International cooperation on stimulus packages and debt relief measures will be crucial to effective and long-term recovery.
Sectors most adversely affected
Pressure on ailing healthcare systems, declining commerce and tourism, dwindling remittances, sluggish capital flows, and tight financial conditions in the face of rising debt. The reduction in industrial activity lowered demand for energy items such as crude oil, leading prices to fall dramatically. This is bad news for energy producers, renewable energy producers, and electric car makers, but good news for consumers and companies. Metals and transportation-related commodities, such as rubber and platinum used in automobile parts, have also witnessed a decline in demand. While agricultural markets are adequately supplied internationally, trade restrictions and supply chain interruptions may cause food insecurity in particular areas.
The economic impact of the COVID-19 pandemic is primarily driven by a drop in demand, which means that there are fewer customers ready to buy the goods and services offered in the global economy. This dynamic is evident in severely impacted industries such as travel and tourism. Countries imposed travel restrictions to curb the spread of the virus, and many individuals were unable to buy flights for vacations or business trips. Airlines lost anticipated income due to a decrease in customer demand, and as a result, they had to cut expenditures by lowering the number of flights they operated.
Throughout the various stages of the health crisis, governments implemented laws to restrict social activities to slow the spread of the pandemic, unwittingly causing a global economic slump. In reaction to the great decline in economic activity, governments implemented a series of steps, beginning with monetary policies aimed at stabilising financial markets and assuring credit flow.
Many governments boost monetary assistance to individuals and ensure that companies have access to the cash needed to keep their employees employed during the pandemic. Despite governments’ exceptional attempts to combat the slump through fiscal and monetary policy assistance, the June 2020 Global Economic Prospects predict a 5.2 per cent loss in global GDP in 2020, using market exchange rate weights—the biggest global recession in decades.
Responses from various countries
Although the scale and breadth of the programmes varied by nation, central governments implemented various fiscal measures to give financial assistance to the health sector, individuals, and businesses. Tax cuts and tax deferrals for people and corporations, wage and income supplements for individuals, including expanded unemployment insurance, and other benefits to businesses are all included in this package.
The Canadian government approved a C$1 trillion spending package to boost economic development on December 1. On November 12, India’s finance minister presented a new $35 billion fiscal package to increase consumer spending while also supporting manufacturing, agriculture, and exports.
Major advanced economies, which account for 60% of global economic activity, are expected to run below their potential production level until at least 2024, implying poorer national and individual economic well-being compared to pre-pandemic levels.
According to mainstream estimates, the economic slump in 2020 will be less severe than previously anticipated, thanks in part to fiscal and monetary policies implemented by governments in 2020. According to the International Monetary Fund’s (IMF) April 2021 World Economic Outlook, the global economy is expected to recover faster in 2021 and 2022 than previously predicted, with global growth expected to expand at a pace of 6% in 2021 and 4.4 per cent in 2022.
According to the projection, nations’ economic recovery would be unequal based on access to medical treatments, the efficacy of governmental assistance, vulnerability to cross-country spillovers, and structural features entering the crisis. India and China, in particular, are expected to outperform global economic growth, with 12.5 per cent and 8.4 per cent growth rates in 2021, respectively.
According to the OECD estimate, unemployment will reach its highest level in more than 25 years, with the average jobless rate rising to 7.4 per cent in 2021 and 6.9 per cent in 2022. The OECD also finds that nations reliant on tourism have been hit more, while countries with strong agricultural and mining industries have been hit less hard.
Global coordination and cooperation—of the measures required to slow the spread of the pandemic and the economic actions required to alleviate the economic damage, including international assistance—provides the best chance of meeting public health goals and enabling a robust global recovery. Because of the nature of this crisis, certain industries may gain from it. E-commerce, food retail, and the healthcare business will contribute to economic development, which will help balance the impact. There is also a crisis-induced shift to online activities (working from home, purchasing things online, connecting relatives, etc.). It provides a chance for IT solution providers to expand their market share.
Once the pandemic ends, it may allow the world economy to enjoy a strong comeback. There are still many variables that could affect such an economic recovery – for example, a reduced supply of goods and services to meet lower demand could result in mid-term shortages and price increases. However, there are some reasons to believe that some of the more ominous predictions may not come true with the right combination of appropriate government responses and luck.