How Covid-19 is affecting the global economy
Introduction
Covid-19 is a serious pandemic that has caused trauma of financial markets. Since the outbreak, Covid-19 has affected over 190 countries, and these countries have experienced an economic downturn as a result of the loss of productive workforce, social distancing policies, weak consumer sentiment, among other factors. It is important to note that before the Covid-19 pandemic, the economy was affected by trade protectionism, economic uncertainties, and falling commodities. However, these issues are solvable, or they could be solved, but the Covid-19 pandemic has weakened the economy to the extent that the national leaders are unable to create and implement the appropriate policies. The pandemic has affected the global supply chain, the demands for goods and services, and all business sectors. International trade has been affected in that the global economic activities in the industry such as airlines, shopping industry, and others have declined, thereby leading to decreased trade volumes. It is important to note that on top of health effect, the business will encounter unavoidable declines despite the government’s measures to calm the situation. While economic concern in many countries has increased, the Covid-19 pandemic will keep the global economy shattered, and the financial markets should expect more economic instability.
According to the World Health Organization (WHO), Covid-19 has caused a huge economic impact, and it is difficult to predict how long the effects will last. Economists are unable to estimate the effect: they say that the effect will hit the economy hard, yet the full recovery is unknown (Ataguba, 1). However, the nations should remain vigilant and come up with strategies to enter the volatile markets despite the pandemic. Ataguba (1) assert that Africa is not like other developed countries in that countries in Africa experience a heavy burden of poverty. Even before the occurrence of the Covid-19 pandemic, African countries experience a higher level of poverty due to factors such as poor governance, poor infrastructure, unending conflict, weak health systems, and many more. Now, due to the Covid-19 pandemic, African countries will suffer greatly. Even though Covid-19 or any other pandemic affects the entire globe or rather it does not have national boundaries, it is important to put concern on the developing countries (Ataguba, 2). This is because, the developing countries seek financial help from the developed countries but since the pandemic has affected all nations, it means that the developing nations will be much affected. For example, the Brookings Institution reported that Covid-19 would affect macroeconomic status in South Africa. The report also asserted that the cost on the microeconomic level could be avoided by investing heavily in the health system. In addition, actors such as communities, organizations, and the individual should adhere to the rules of staying at home, social distancing, good hygiene, among other basic principles (Ataguba, 3). However, it is important to note that economic costs will not occur due to neglect of the government rules such as social distancing, washing hands, wearing a mask, and others. The article states that the economic costs will be huge as a result of microeconomic and macroeconomic costs.
Effect of Covid-19 on micro-economy
On microeconomic costs, it means that the families, health centers, and schools will be affected. Families will incur costs associated with diagnosis and treatment, and other copayments. This is an indication that the Covid-19 pandemic will cause a heavy out-of-pocket burden in African countries. The question that arises is that where will individuals get the money to make direct payments, yet the source of livelihood is also affected? For example, South Africa has a few informal workers, and their contribution to the gross domestic product is only 10% (Ataguba, 3). The health expenditure may not be impacted because the country spends -8% of the GDP, but other establishments will experience productivity losses as a result of business closure and employees' leave. Still, on the microeconomic level, schools, shops, restaurants, will be affected due to business closure. It is difficult to estimate all the microeconomic costs, but the point is that the Covid-19 pandemic have affected the microeconomic economy and it will continue to affect due to the uncertainty.
Government spends less on health care in some African countries, but the Covid-19 pandemic has added considerable additional costs. This is because, the government wants to budget for Covid-19, but there is no revenue due to a decline in economic activity (Ataguba, 4). Due to the severity of infections, the government is expected to increase its health spending for management and treatment, building infrastructure, providing relief, and many more. The article states that the Covid-19 pandemic will not only increase the health care spending but it will contribute to something known as 'crowding out'. This means that as the government increases the attention and effort in public health spending, it will reduce spending on other areas of the market, such as communicable diseases. This means that as the government is spending to curb the Covid-19 disease, people will have poor health services on other illnesses and hence raise the burden of disease (Ataguba, 5). The government will also ignore the effect of self-isolation, such as mental and physical health, which will also cause adverse health outcomes. In general, it means that Covid-19 has already affected the economy, and it will continue to affect in that the government is concentrating on the pandemic hence spending less on other health issues, which in the future will require government spending.
The effect of Covid-19 on macro-economy
First, it is important to understand that the pandemic has caused a scarcity of commodities due to poor productivity. The demand for imports and export has decreased, and other global economic activities have been affected. Note that economy plays a significant role in controlling the life expectancy, and mortality rate (Boissay & Rungcharoenkitkul, 2). The macroeconomic had been affected in that the consumption of goods and services is low. For example, there is a reduction in the oil prices, and due to the threat to the Nigeria economy, Nigeria has devalued its national currency. Also, the activities that raise the GDP growth as such as investments have been affected, and this means that the Covid-19 outbreak had affected the estimated national growth. Due to the many uncertainties, the pandemic will continue to affect the macroeconomic (Boissay & Rungcharoenkitkul, 2). This is because, the pandemic has reduced the manufacturing activity by 20%, and the reduction will affect the GDP by 6-8%. Another point is that the pandemic has affected the supply and demand. This is contributed by a lack of labor supply and consumption, loss of employee workdays, and low productivity. The supply will reduce GDP by 2.3% as a result of the reduction in the labor force, low return to capital, and low GDP growth, whereas the demand will reduce by 2% (Boissay & Rungcharoenkitkul, 2). Countries such as South Africa, and Anglo rely on export activities, but the failure to participate in trade will affect the foreign financing flows and affect the overall GDP growth. Countries that rely on commodity exports will also experience fiscal deficits. This is because, the government generates 12% revenue in normal circumstances (Boissay & Rungcharoenkitkul, 2).The government is spending more on health care, and this means that there will be a fiscal balance. The fiscal balance and poor economic activities will raise public debt.
According to Nicola et al. (1), Covid-19 pandemic has caused an economic crisis and recession in the world. It has affected the primary sector, the secondary sectors, and the tertiary sectors. Sectors such as farming, fishing, and mining are no longer producing goods such as meat and vegetables. On the secondary sector, manufacturing industries are not producing commodities due to self-isolation policies and poor supply chains. On tertiary sectors, sectors that are expected to provide services such as education are closed. Also, public health facilities are closed to prevent the spread of the virus. Communities and organizations are not working together due to social-isolation policies, and this has led to uncoordinated government responses Nicola et al. (1). The pharmaceutical industry is also facing the challenge of importation. For example, the U.S import pharmaceutical ingredients from India, EU, and China. Limitation in supply and affects the importation, and the industry is experiencing revenue loss. The tourism sector is significantly affected in that urgent measures to prevent travel have been implemented. For example, in 2019, Vietnam received 1.45 million visitors from China, and in January, it received 644,000 visitors Nicola et al. (1). This has affected Vietnam’s tourism sector by causing a $5 billion loss. Philippines will also experience a GDP reduction of 0.3-0.7% due to low travel demand. The hospitality industry has experienced revenue reduction as a result of the Covid-19 crisis. The telecommunications sector had predicted that this year, there would be high value investments on infrastructure and e-commerce sectors. However, the Covid-19 pandemic has affected the supply of materials and demand for products. Many telecommunications businesses have been closed. In general, the Covid-19 pandemic has caused a sectorial impact on social and economic sectors Nicola et al. (1).The agricultural sector is unable to feed the world, and the impact will continue in that food supply chains must cope up in order to prevent the spread of the disease. However, the government should support agribusiness by providing the workers with the appropriate working conditions. It is important to note that the pandemic will cause long-term effects since it will take time for the sectors to gain a normal level of functioning.
Conclusion
The Covid-19 pandemic has posed a significant threat to the world economy. The outbreak has affected both the micro-economy and macro-economy. This means that in the microeconomic, there are scarce resources, the production of goods is low, and supply and demand are affected. On the macroeconomic level, the global economy is experiencing a second recession greater than the Great Depression as a result of declines in GDP growth. Workers in developing countries are mostly affected due to limitations in health and social protection. They have lost their jobs, and the countries are experiencing lower trade and investment. Sectors, including manufacturing sectors, have decreased the manufacturing activities. Supply chains are not supplying goods due to restrictions of movement. In general, the pandemic has failed the market system, in terms of financial markets, supply chains, and micro and macro-economy. Due to the uncertainty, economists are unable to estimate when the businesses will recover. Experts believe that the pandemic will continue to cause economic disruptions, and the world economy will lose all gains.
Work cited
Nicola, Maria, et al. "The Socio-Economic Implications of the Coronavirus and COVID-19
Pandemic: A Review." International Journal of Surgery (2020).
Ataguba, John E. "COVID-19 Pandemic, a War to be Won: Understanding its Economic
Implications for Africa." Applied Health Economics and Health Policy (2020): 1.
Boissay F., & Rungcharoenkitkul P. Macroeconomic effects of Covid-19: an early review. Bank
for International Settlements (2020).
