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ECONOMIC IMPACT OF COVID-19 PANDEMIC

Author : Samriti, III year of B.A.,LL.B from Geeta institute of law.

Co-authors -1: Diksha, III year of B.A.,LL.B from Geeta institute of law.

Co-author - 2: Shallu, III year of B.A.,LL.B from Geeta institute of law.


ABSTRACT

COVID-19 is not only a global pandemic and public health crises, it has also severally affected the global economy and financial markets. Global cities like New York, London and Mumbai looked like ghost towns at the height of the COVID-19 lockdown, with deserted streets, lined with closed shops. The lockdown has helped to flatten the curve in most places, but it has also resulted in devastating economic repercussions. Closing their borders was the first step most government took to stop the spread of the diseases, followed by complete lockdowns restricting the opening of businesses and some people even preventing from leaving their homes. These restrictions and people’s fear of being exposed to the virus have led the travel and tourism sectors to be hit hard, negatively affecting many industries like airlines, cruises and hotels. To enforce social distancing, businesses where people gather have been forced to close. The entertainment industry consisting of movie theaters, sporting events, concerts etc., is reeling under these constraints. Another sector that has been affected gravely is the service industry including restaurants, beauty salons, spas, barber shops etc. Stock markets have crashed and plenty of large and small businesses have had to file for bankruptcies because they were unable to stay afloat and pay their bills without any income. How are people laborers who are constantly struggling to make enough money for one month’s rent going to find the means to pay the back rent that is piling up, when they don’t even have a job? Many economists predict increased unemployment, homelessness and bankruptcies in the months following the COVID-19 pandemic, leading to a global recession that could last years.


Key Words: COVID-19, Repercussions, Constraints, Bankruptcies, Recession.

INTRODUCTION

The novel coronavirus that emerged in Wuhan, China, in December 2019 has leaped across the borders, sending ripple around an interdependent and highly mobile global population. The virus referred to as SARS-CoV-2, causes a disease that has been officially named COVID-19. On March 11,2020, the Director General of the World Health Organization (WHO) declared COVID-19 a global pandemic. Although the COVID-19 pandemic affected all over the world in 2020, low-middle and high-income nations were hit in different ways. In low-income countries, average excess mortality reached 34%, followed by 14% in middle-income countries and 10% in high-income ones. However, middle-income nations experienced the largest hit to their gross domestic product (GDP) growth, followed by high-income nations. The world economy has been affected in many ways. Poorer countries have suffered the most, but,

despite their greater resources, wealthier countries have faced their own challenges. Amid the coronavirus pandemic, several countries across the world restored to lockdowns to “flatten the curve” of the infection. These lockdown meant confining millions of citizens to their homes, shutting down businesses and clearing almost all economic activity. When countries lift restrictions after lockdown they gradually restart their economies. The IMF had estimated of the global economy growing at -3% in 2020 in an outcome “far worse” than the 2009 global financial crises. Economies such as the US, Japan, the UK, Germany, France, Italy and Spain are expected to contract in 2020 by 5.9, 5.2, 6.5, 7, 7.2, 9.1 and 8% respectively. The United Nations says we may see a $2trillion shortfall in our global income and a $220 billion hit to developing countries because of COVID-19. The COVID-19 pandemic has triggered the most severe global economic recession in nearly a century. Causing enormous damage to health, jobs, well-being. So, COVID-19 has had a powerful impact on national and global economies, generating recession and possible depression.

OBJECTIVE OF THE PAPER

The objective of this research paper is as follows:

  • To that how the pandemic has affected them

  • To know that how they have coped.

  • To know that how COVID-19 impact on different sectors of the economy.

METHODOLOGY

For the present study, we have used Secondary data which is taken from the various newspapers, articles, internet, magazines etc.

Channels through which it will affect the economy

There are three channels which will affect the economy

  • Direct effect on production: It has affected the production process in various countries because of all substantial and complete lockdown in various places. Insufficient production will have a direct impact on the export business of countries. As we all know, China is one of the biggest exporter countries. According to the world bank even if there is no recent outbreak of the virus still the countries are likely to undergo slow growth in the year 2020.

  • Market disturbance and supply chain: Many countries rely on raw materials and intermediate goods from other countries. Because of the declaration in the economic activities and various transportation restrictions, countries will experience an impact on production and profitability. This impact will seen, especially in manufacturing. I have presumed it that surviving this disruption will be more difficult for small-and medium-sized businesses.

  • The financial effect on the financial market and firms: the disruption in the market might create stress on forms with inadequate liquidity. Because of the vulnerability of the firms, the traders may not understand the financial market well. This situation will increase the risk in the market, resulting in less profit and less trust in the instruments and the market. There also remains the possibility of a clear decline in the corporate bond and equity market, as the investors might opt for holding back the securities because of the uncertainty because of the pandemic.

The direct and indirect costs of the COVID-19 pandemic which may impact the global economy

Direct costs: Direct costs include the cost of testing and contact tracing, in addition to the costs of hospitalization, intensive medical care, control interventions for managing the disease, and the health care workers. They will also include the cost of vaccines, treatments, rapid diagnostic tests and antibodies tests , if and when they become available. The true direct costs would also include the cost of research and development of new therapies and vaccines , although assigning a value to these may be challenging. Direct costs also include out-of-pocket (OOP) expenditure. In low and middle-income countries, this may comprise upto 50% of all health expenditure if government do not make provision for free testing and treatment for patients with COVID-19. OOP expenditure includes the cost of transport to hospitals for testing and treatment and other expenditure such as the cost of protection majors that households businesses would not otherwise have spent money on, for e.g. purchasing hand sanitizer and disinfectant.


Indirect cost: indirect costs are all of the additional costs accosted with either being ill or the economic impact of behavior adopted to avoid becoming infected. They incorporated productivity losses arising from worker absenteeism due to morbidity and morality, including the loss of wages as well as opportunity costs. They include spill over effects on the economy from Aversion interventions that are either government or self- imposed to avoid exposure to the virus. The outcomes of these effects include both supply and demand shocks. Supply shocks arise from the closure of businesses, hotels, restaurants and other businesses that are deemed “not-essential”. Demand shocks result from decreased consumption, travel, transport and other unnecessary expenditure. Each of these are discussed separately below:

Supply shocks

Manufacturing and production: production in china was substantially affected by the government-imposed shutdown in Hubei province and other areas. Hubei province plays a major role in the Chinese economy as a largest transportation hub in central china and a significant industrial base that includes a mixture of traditional and hi-tech sectors, such as automobiles manufacturer, food processing, electronic equipment manufacturing, textile factories, petro chemical industries, as well as iron and steel production. Many manufacturing firms around the world rely on imported intermediate product for China and other countries affected by the disease. For example, Car manufacturer including Nissan and Hyundai, temporarily closed their factories outside of China because they were unable to get the parts they needed.

The slow down in economic activity-and transportation restrictions-in affected countries will have an impact on the production and profitability of specific global companies, particularly those involved in manufacturing. Small and medium-sized firms, especially firms that rely on intermediate goods, may have greater difficulty surviving the disruption. Returning businesses to operational health after such a severe shutdown will be extremely challenging, with most industries needing to reactivate their entire supply chain.


Supply chain disruption

Businesses around the world are dealing with are dealing with lost revenue and disrupted supply with lost revenue and disrupted supply chains due to China’s factory shutdowns. China has become the primary source of many crucial medical drugs, including penicillin, heparin and medications essential for surgery. Up to 80% of the world’s basic ingredients for manufacturing antibiotics are produced in China. The US pharmaceutical industry reported fears of drug shortage as India faced lockdowns on 24 March. India is the world’s leading producer India is the world’s leading producer of high-volumes of sterile injectable drugs, supplying almost half of the generic drugs, supplying almost half of the generic drugs used in countries such as the US. On 27 February, the US food and drug Administration released a statement saying the US was experiencing it’s first drug shortage directly related to COVID-19 pandemic. These stockouts can leave many people without the essential medicines they need.

At the same time, supply chains have been experiencing systemic demand shocks. The shortage of masks, gloves and other personal protective equipment, in addition to shortages in the numbers of ventilators, has been well documented. On top of this, some individuals have been stocking up on groceries and household items in preparation for compliance with restrictions on movement, in some cases buying several months’ worth of goods in a single day, particularly if they begin to see shelves with low levels of stock. A classic example of this is hygiene products, such as toilet paper, hand sanitizers and surface disinfectants, which have seen sudden spikes in demand, leading to panic buying and stock-out situations. The shortages are compounded by the scarcity of air and ocean freight options to move products, hence lead times have doubled. An Institute for Supply Management survey revealed that more than 80% of companies believe that their organization will experience some impact because of disruption due to COVID-19. Of those, 16% of companies reported having already adjusted revenue targets downward by an average of 5.6% because of the pandemic been experiencing systemic demand shocks. The shortage of masks, gloves and other personal protective equipment, in addition to shortages in the numbers of ventilators, has been well documented. On top of this, some individuals have been stocking up on groceries and household items in preparation for compliance with restrictions on movement, in some cases buying several months’ worth of goods in a single day, particularly if they begin to see shelves with low levels of stock. A classic example of this is hygiene products, such as toilet paper, hand sanitizers and surface disinfectants, which have seen sudden spikes in demand, leading to panic buying and stock-out situations. The shortages are compounded by the scarcity of air and ocean freight options to move products, hence lead times have doubled. An Institute for Supply Management survey revealed that more than 80% of companies believe that their organization will experience some impact because of disruption due to COVID-19. Of those, 16% of companies reported having already adjusted revenue targets downward by an average of 5.6% because of the pandemic.

The COVID-19 pandemic has shown that supply-chain disruptions could wreak greater havoc on the global economy than most governments had realized. Businesses that are nimble enough to switch suppliers and that have sufficient liquidity to survive periods of low sales and revenue will have a competitive advantage.


Education

Governments in 188 countries around the world have temporarily closed educational institutions in an attempt to contain the spread of COVID-19. These closures are impacting more than 89%, or 1.5 billion members, of the world’s student population. Although necessary, school closures cause huge economic and social disruption, especially for children. In the US, 30 million students depend on free or reduced-price meals at school for lunch, breakfast, snacks and, in some cases, dinner. Many of these students rely on a structured support system, which they may not be receiving at home, particularly in the case of children of low-wage workers in essential businesses who cannot afford to miss work. While some schools have instituted online learning, this creates additional equity considerations, particularly when some students may not have access to a computer or a reliable internet connection at home. The long-term effects of these disruptions are difficult to estimate. While some children will catch up on missed learning, others may eventually drop out, affecting their long-term earning capacity.


Demand Shocks

Capital flows and trade in goods and services: Restrictions on movement and hence economic activities also have an impact on trade and investment through reduced demand for goods and services. Global declines in economic activity will reduce trade and affect imports of consumer goods from developing countries, particularly those with highly concentrated trade exposures to the EU and the US.


Travel and Tourism: The travel and tourism industry has been the hardest hit by the economic disruption from the COVID-19 pandemic, with impacts on both travel supply and demand as well as huge job losses. In 2018, the travel and tourism industry accounted for 319 million jobs worldwide. Most airlines have already cut their flying capacity by at least 75% and announced widespread staff redundancies. The United Nations World Tourism Organization (UNWTO) estimates international tourist arrivals could decline by 20% to 30% in 2020. The countries most likely to be negatively impacted are those that rely heavily on international tourism. For example, in the Maldives, travel and tourism contributes more than 60% of national GDP.


Financial market losses: The impact of COVID-19 is likely to spill over from the real economy to the financing and financial markets. Disruption to shipments and production may create financial problems for some firms, particularly those with heavy debt. Traders may take investment positions that are unprofitable under the current conditions, weakening trust in financial instruments and markets. This could lead to equity and corporate bond market decline and/or financial market disruption, exposing investors who have underpriced or financial market disruption, exposing investors who have underpriced risk.


RECESSION AFFECT THE STOCK MARKET

The stock market typically continues to decline sharply for several months during a Recession. Recession have occurred for many reasons but typically are the result of imbalances built up in the economy that need to be corrected. These include rising interest rates, inflation and commodity prices as well as anything that hurts corporate profits which may trigger higher unemployment.


Is recession good for the economy?

During these period of recession, the economy slows, unemployment rises, and companies go out of business. However, a recession could also have benefit, clearing out poorly-performing companies and providing rock-button sale prices for assets.


BANKRUPTCIES

Bankruptcies weigh heavily on labor markets. Unemployment typically increases three times more if a fall in GDP is accompanied by a similar-sized increase in bankruptcies. Concentration of bankruptcies in those sectors hit especially hard by COVID-19 could exert a significant drag on the labor market. The number of bankruptcies fell in 2020 in many countries. At first glance, this was a strange occurrence as 2020 was the year of COVID-19 outbreak that caused lockdowns, a sharp decline in business activity, and negative economic growth.

CONCLUSION

The coronavirus spread rapidly throughout the world. The pandemic created severe economic impact in different sectors of the economy negatively affecting global trade, interest rates, financial market liquidity and created demand and supply shocks. In my research I have analyzed the economic impact of COVID-19. I discussed about the channels which affect the economy. My paper will help the reader to know how COVID-19 impact the global economy in two following costs. The COVID-19 recession was a global caused by the COVID-19 pandemic. The recession began in most countries in February 2020. While the length of the recession varied across countries, it is generally considered the shortest global recession on record. Recession saw unusually high and rapid increase in unemployment in many countries. The recovery procedures will require collaborative action of government, policymakers as well as common people in the world. Recovery is not possible without social distancing policies by the Government and who make the policy and there should more and more testing facilities available to peoples. After that, people have easy access to fight with this pandemic. Masks and sanitizers are most important to fight with this pandemic. Development of more and more vaccines for all age group peoples.

This paper will help readers to understand how the COVID-19 has created a widespread economic slowdown and has affected different costs and shocks of the economy.

REFERENCES

Economic modelling for disaster impact analysis.

The effects of governmental policies on SMEs during COVID-19. Small Business Economics




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