Covid-19 Devastated the Global Economy

Global Economic Effects of Covid-19
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Global Economic Effects of Covid-19
Introduction
COVID-19 pandemic has resulted in a considerable slowdown of economic activities around the world. Given its rapid spread, countries have adopted public health measures like social distancing to contain it. As part of social distancing, the governments have required businesses, schools, and community centers to close down(Brodeur et al., 2020). Mass gatherings have also been prohibited, and many countries have imposed lockdown measures, restricting travel only for essential needs. These measures have affected economic activities around the world. COVID-19 affected major economic sectors like tourism and hospitality. The stay-at-home order imposed by governments to combat this epidemic has resulted in the loss of jobs and livelihoods. Businesses operations became weak, and the cost of living increased due to COVID-19. The International Monetary Fund (IMF) predicteda decline in the global economy by over 4% in 2021, higher than that of the 2008 global financial crisis(Brodeur et al., 2020). The contraction is due to the movement restriction, reduced economic activities, and increased uncertainty. Presently, the economic implications of the pandemic are extensive, withadverse effects on the production supply chain, labor markets, and financial sectors.
Causes of the COVID-19 Pandemic Crisis
COVID-19 is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2):- a novelstrain of coronavirus that belongs to the SARS species (Adhikari et al., 2020).This disease triggers a respiratory tract infection. The recent outbreak of COVID-19 began in Wuhan, China, in late 2019. Scientists believe that this new strain originated from bats, but one study attributes its origin to pangolins (Medical News Today, 2021). Since the outbreak of COVID-19, the disease has spread worldwide, affecting the global economy.
Comparison of COVID-19 Crisis and 2008 Crisis
COVID-19 has hit hard the global economy, resulting in a massive crisis. According to Kumar (2020), the 2008 financial crisis was a slow hit that affected the macroeconomic development after months. The problem was a banking crisis caused by overly bank debts, and there was no equivalent crisis on the economy’s supply side. However, the COVID-19 crisis came with animmediatefall in economic activity as it led to the shutdown of major companies' operations and the closure of the global supply chain(Chaudhry, 2020). As observed, this pandemic is striking many economic sectors harder than the 2008 financial crisis. Most industries like travel and tourism, automotive, and engineering sector will recover from the losses they sustain from COVID-19 after a long time.
Both crises share uncertainty as to the primary factor in their existence and spread. Uncertainty is a non-quantifiable risk that cannot be traced easily to predict its occurrence and impact. It applies to both crises. In a nutshell, Americans were granted subprime loans with Neither Income Nor Jobs and Assets (NINJA) until 2007(Strauss-Kahn, 2020). The latter risk was hidden and transferred through sound securitized assets and financial vehicles to prevent the detection of significant risk. It led to the freezing of international financial ties and an uncertainty spike(Strauss-Kahn, 2020). The COVID-19 crisis shrinks a huge segment of business activities around the world (Chaudhry, 2020).
Economic Impact on United States Economy
Before the pandemic, the US economy was excellent. The unemployment rate below 3.5%, and inflation did not go beyond the fed’s target of 2.0%(Forbes, 2020). However, COVID-19 contracted the US economy by depressing business investment and consumer spending, rendering millions of Americans jobless and pushing them into poverty. The pandemic forced the US government to close a significant portion of the country’s economy, resulting in a decline of the real Gross Domestic Product (GDP) by around 32.9 %(Walmsley et al., 2021). It was the worst drop since the great depression. Unemployment spiked to its highest rate, hitting about 14.7% earlier this year(Reuters, 2021). It was the maximum rise since the great depression, when the unemployment rate reached approximately 25%(Forbes, 2020). Although the rate has decreased for five successive months, it is still above the average reading of 3.5%(Reuters, 2021).
COVID-19 also had a considerable impact on oil prices. It led to the collapse of oil prices.In January 2020, global oil prices were strong, averaging approximately $ 64 per barrel(Amadeo, 2021). However, COVID-19 drastically lowered global oil demand following the shutdown of businesses and travel bans. In April same year, oil prices dropped to about $19 per barrel worldwide and -$37 per barrel in the US(Amadeo, 2021). Although oil prices picked later, they never regained their original average cost.
Additionally, the pandemic led to stimulus spending and debt. On March 27, 2020, Congress approved the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) toprovide financial relief to families and businesses affected by COVID-19(Walmsley et al., 2021). The $ 2 trillion aid package was among the bills passed to provide relief(Amadeo, 2021). According to the Congressional Budget Office (CBO), the 2020 federal budget deficit would increase to about $3.3 trillion, triple the 2019 deficit(Amadeo, 2021). The CBO also predicted that the 2021 budget deficit would reach around $2.3 trillion, the second-largest since 1945(Amadeo, 2021).
Economic Impact on Developed and Major Economies
COVID-19 has negatively affected the developed countries and major economies in the world. When the World Health Organization declared COVID-19 a global pandemic, developed countries introduced lockdown measures that forced every person to stay at home. Due to the stay-at-home order, the unemployment rate in developed countries increased. Europe is among the biggest economies worldwide that experienced the wrath of COVID-19.
European countries have momentousmotor vehicles, food products, machinery, equipment, basic metals, and fabricated metal products(Kalogiannidis & Chatzitheodoridis, 2021). The production of these items was high before COVID-19. Due to the pandemic, automobile, chemical, electronics, and aircraft manufacturers face challenges on supply chain distraction. Many automobile companies, retailers, machinery, and equipment manufacturers have temporarily shut down their operations to reduce the spread of COVID-19(Jackson et al., 2020). For instance, in Italy, Ferrari SPA suspended production for almost two weeks due to nationwide lockdown order issued by the Italian government. In the United Kingdom, Jaguar Land Rover Automotive PLC suspended its production facility following government advice to combat COVID-19(Albu et al., 2020).
In the banking sector, the pandemic has created uncertainty considering the fact that European banks faced debt crises before the outbreak. According to the European Banking Authority (EBA), the weighted average ratio of the non-performing loans stood at 3% as of June 2019 compared to 6% in 2015(Kalogiannidis & Chatzitheodoridis, 2021). The COVID-19 has worsened the level of bank loans in the bank's balance sheet. This condition has made small and medium-sized businesses (SMEs) struggle to pay off their debts, resulting in the closure of most businesses (Jackson et al., 2020).
Policy Responses in the United States: - Fiscal Policy and Monetary Policy
Fiscal policy
The US government adopted the Paycheck Protection Program, which issued forgivable loans to minor businesses.Other legislation like Coronavirus Preparedness and Response Supplementary Appropriations Act, Families First Coronavirus Response Act, The CARES Act, and the Consolidated Appropriations Act was enacted to compensate households and businesses affected COVID-19(Bullard, 2020).
Monetary policy
The Federal Open Market Committee (FOMC) reduced the target range for the federal funds rate to near zero. It also came up with other forms of interventions, such as lending and purchases of variousassets adopted by the Treasury Secretary and the Board of Governors(Bullard, 2020). Some of these emergency funding programs were designed to issue support fun...