How COVID-19 has been infecting the global economy
Business and Technology
April 21, 2020
Photo by Emily Sakaguchi
The ongoing spread of COVID-19 has become the biggest threat to the global economy and financial markets today. From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of disruption to economies from containment measures. The impact of this pandemic has rocked markets worldwide, creating plunging stock prices and bond yields. Investors fear that the rapid spread of COVID-19 will destroy economic growth and government action will not be enough to stop the economic decline. Widespread lockdowns have been enacted in some virus hotspots and have further weakened the global economy. According to the International Monetary Fund, the global economy has officially entered a recession – defined as two consecutive quarters of economic decline – that could be as bad or worse than the Great Recession of 2008. The Great Recession had long-term impacts within the economy and high unemployment, falling incomes, and reduced economic activity carried through for a slow recovery.
In just weeks, the COVID-19 pandemic has shaved off nearly a third of the global market cap. Globally, many indexes remain more than 20% lower than they were at the start of the year. According to BBC News, stock markets around the world have suffered the worst quarter since 1987, amid the massive sell-off tied to COVID-19. The Dow Jones Industrial Average, a stock market index, and London’s FTSE 100 plunged 23% and 25%, respectively. The S&P 500 lost 20% during the quarter, its worst since 2008. Economists have warned that the impact on the global economy is likely to be worse than the Great Recession of 2008. For example, forecasters for IHS Markit predict that the growth will shrink 2.8% this year, compared to a 1.7% drop in 2009. BBC News also reported that the outlook for countries such as Italy and less developed economies is worse than that of China and the UK.
“We remain very concerned about the negative outlook for global growth in 2020 and in particular about the strain a downturn would have on emerging markets and low income countries,” says the president of the International Monetary Fund, Kristalina Georgieva. Over recent days, governments have pledged massive rescue funds which helped lift share prices. Analysts for US Bank Wealth Management expect that despite monetary and financial stimulus, the volatility within the stock market will remain elevated as the impact of COVID-19 remains unknown.
COVID-19 has influenced a significant change in consumption habits. With fewer people going out due to social distancing and quarantine, consumerism is down and businesses are suffering the consequences. Furthermore, the sudden shut down of all non-essential services in Ontario has left business owners and entrepreneurs facing alarming uncertainty for their future affairs. Places like gyms, spas, and retailers were closed, and restaurants were limited to only providing takeout. On the consumer’s side, fewer people are going out and associating in public spaces, and more people are changing their spending habits. For employers and employees, the supply of materials and resources are delayed due to the disruption of global supply chains, further jeopardizing the shipment of products and supplies. According to a recent survey by the Canadian Federation of Independent Business (CFIB), half of the small businesses have recorded a drop in sales due to the pandemic. The areas most affected by COVID-19 related closures included arts and recreation, hospitality, personal services, and retail.
“These are very difficult days for a lot of small business owners,” says CFIB president Dan Kelly. “They have to think about the safety of their employees first and foremost, how they’re going to pay each employee and … how they can continue to serve their customers as best they can.”
Eileen Fischer, a professor of marketing at York University’s Schulich School of Business, encourages customers to support local businesses to ensure their survival. In terms of local restaurants, people can order take out or purchase gift cards for future use. Buying online can also help out local retailers that have closed their doors but still deliver online.
To furthermore help sustain these businesses, Prime Minister Justin Trudeau announced additional economic actions to help those affected. “These are extraordinary times. Our government is taking extraordinary measures,” stated Trudeau. “The measures we’re announcing today will provide up to $27 billions in direct support to Canadian workers and businesses, plus $55 billion to meet liquidity needs of Canadian businesses and households through tax deferrals to help stabilize the economy.”
He stated that these measures will ensure that Canada’s economy recovers after the pandemic. In terms of protecting the health and safety of Canadians, the government of Canada is investing more than $1 billion to public health measures. Communication and public education on COVID-19 have been undertaken to ensure that Canadians are properly notified of the government’s actions and are able to make informed decisions on how to best protect themselves. Federal, provincial, and territorial Ministers of Finance are carefully monitoring the impacts of the virus on workers and economic growth, and are prepared to take action where needed.
Through the pandemic of COVID-19, no country has been left untouched and significant economic pain seems unavoidable in all countries. The Organization for Economic Co-operation and Development has warned that the world will take years to recover from the COVID-19 pandemic. In typical economic shock, the government spends money to try to encourage people to go out and spend. Unfortunately in this crisis, the authorities are demanding that people stay inside to limit the spread of the virus. Within developing countries, the consequences are extremely severe. According to the World Bank, the financial impact of coronavirus will stop almost 24 million people from escaping poverty in East Asia and the Pacific. In the most optimistic view, China has shown signs of effectively containing the virus and if their factories spring back to life, that will ripple out across the globe. Although this recession has put many businesses and companies in jeopardy, some economic theories say that capitalism actually needs periodic downturns to refresh itself through creative destruction.