For ages 12-18
Two minute read. Written by Yamini Bharadwaj, a grade 9 student
That COVID-19 is impacting people at a global scale is now not news. Recurring news reports and message threads discuss its health risks and various possible remedies. An equally covered aspect of COVID-19 is how it is affecting the global economy.
What is ‘Global Economy’?
To understand Coronavirus’ impacts on the global economy, we first have to take a look at what the ‘Global Economy’ really means. In brief, the phrase ‘Global Economy’ refers to the consumption, distribution, and trade of goods and services across various countries. ‘World Economy’ is at its basic level, a collective of the national economies of all countries. To explain this better, let’s take the example of poverty. Poverty is a long-term global economic issue since it impacts almost if not all nations. It is a problem which rose because of global change caused by richer nations, the government, and economy. Now that we have these points out of the way, let’s understand how coronavirus threatens the global economy.
What are the major economic impacts of COVID-19?
The trajectory of Coronavirus is largely unknown. Scientists haven’t devised a cure for it yet, and it is expected to return in the winter of 2020. At the moment we can only take preventative measures like social distancing, quarantines, and putting a pause on business activities that deal with social interaction. Thus, rolling recessions are the likely major impact of coronavirus.
A rolling recession is when there is weakening in economic activities in certain sectors of the economy at a time. For instance, due to coronavirus, the airline industry has taken a severe hit since people do not want to risk contacting the virus by using public transport. Travel industry on the whole has taken a hit as people are not going out – so hotels, restaurants etc are all shut. This is leading to a massive loss in revenue and could result in job losses. Shutdowns also bring about labour and supply shortages in factories because they cause travel restraints. “The outbreak has the potential to cause severe economic and market dislocation. But the scale of the impact will ultimately be determined by how the virus spreads and evolves, which is almost impossible to predict, as well as how governments respond,” said Neil Shearing, group chief economist at Capital Economics.
The UN foresees a slowdown in the global economy to under two percent this year. “It will likely cost the global economy $1 trillion in 2020,” the UNCTAD (United Nations Conference on Trade and Development) stated on 9th March 2020. A slowdown in the economy is a situation in which GDP growth slows but does not decline. (GDP is a monetary measure of the price of assets in a market for all goods and services produced in a particular time period. Thus, in an economic slowdown, the market value growth rate of products reduces.)
Why is everyone talking about the stock market?
The stock market specifically has plunged because of COVID-19. Let’s figure how by first understanding what the stock market is and then relating it to the knowledge we already know. The stock market refers to the collection of markets and exchanges where activities of buying, selling, and issuance of shares of companies take place. When someone buys the shares of a company, they have a claim on a specified amount of the assets and profits of that company. It has already been established that the travel sector, factories, and companies exposed to the Chinese market were affected severely by Coronavirus. Thus, profit produced by these sectors falls very low, and those who had invested in these stocks incur losses. The money they invested in buying these shares is also lost.
Are individuals impacted?
Now, we must also consider which people are impacted
by Coronavirus on an individual scale. Those part of businesses not dealing with
services can work from home. Hence, they are not massively impacted by
Coronavirus. However, daily wage workers, cab drivers, household workers, and
also those who live from paycheque-to-paycheque whilst being in the service
sector will be harmed by the virus. Due to shutdowns and a fall in the use of
public transportation, these people won’t be able to work and receive regular
payment. At an individual scale, they may be harmed the most.
The United Nations has warned that about 25 million jobs could be lost worldwide due to coronavirus
At the moment it seems Coronavirus may send emerging economies into recession by mid-year. Many disruptions have spread worldwide. Meanwhile nations and governments try to slow the rate at which the virus spreads in order to limit the economic damage it has the potential to cause.