Coronavirus in the name of COVID-19 started in December 2019 in the city of Wuhan, China. The world has been seeing the dark side of the virus ever since. The fact that governments, militaries, and industries are brought to a halt is something we cannot avoid seeing. Nations around the world, including almost all industries, stand still, fighting a silent battle to prevent the fast spreading of the virus. With over 1 million cases and approximately 75,000 deaths across almost 154 countries, the virus has become nothing short of a pandemic. The impact of coronavirus on global economy is inevitable.
For the first time in recent human history, people are facing many kinds of crises together, such as health crisis, food crisis, employment crisis, and financial crisis. Although it is self-explanatory that public health takes precedence over anything else at this time, we cannot avoid the global economy that is at risk. When the whole world is forced to a stop, the global economy automatically drops. Despite the biological nature and effects of COVID-19, one of the significant issues we are facing today revolves around financial crisis as a result of the virus. Almost all the other problems that have risen during this pandemic are due to misinterpretation, miscommunication, and poor comprehension of information that has led people to panic. And this has given birth to a lot of pathways to an economic crisis.
Impact of coronavirus on global economy and global health
The countries around the world are battling a microscopic infection with every power they have. The World Health Organization has called coronavirus a pandemic due to multiple death all around the world at the same time. Public health comes before anything. Yet, concentrating on global health can cause the global economy to drop drastically. Governments and authorities support all the medical facilities and employees with the funds they have to facilitate medical aid to affected countries. At the moment, more than five billion people are locked down in their residences and quarantine centers. A massive downfall of global health leads to a considerable impact of coronavirus on global economy. Global health and global economy go hand-in-hand, going forward to become what possibly would be a worse global crisis than in 2008.
Imminent global recession
The economic insinuations of COVID-19 are unparalleled. The other pandemic that affected to such an extent was the Spanish Flu in 1918. The state of the global economy is, however, drastically different from centuries ago. Today, economies between countries are much closer and knitted together with massive volumes of international trade, supply chain, migration, and stocks. Because of the closeness in economies between countries, the world is much more prone to a pandemic than before. Therefore, COVID-19 is most likely to hit significant economies such as the United States, China, Europe, and other countries that have a vast international financial market. It may well be that the world has not seen the worst of the pandemic yet, and the impact of coronavirus on global economy will continue to face chaos in the months to come.
Global recessions are most likely to become as a result of either one of three factors. They are demand shock, supply shock, or financial shock. Coronavirus pandemic is likely to blow all three together at one go. As the world has gone into lockdown, consumer demand has dropped at an unbelievable rate in many industries, thus resulting in demand shock. Since most industries and factories are closed, the supply chain has been affected, hence creating the supply shock. During the pandemic, governments are forced to utilize their resources for medication. Alongside, businesses that work on small margins are facing a liquidity crunch, leading to foreclosure or bankruptcy. This has already started in low economic countries in the world. With these happening in the world, a global financial crisis is inevitably on its way. Perhaps, we have not yet seen the darkest effects of COVID-19.
High risk of unemployment
A demand shock during a recession leads to considerable unemployment around the world. We have already seen manufacturers, producers, and other industries downsizing their staff due to lack of demand in 2008 when the recession hit the world. Moreover, the export and import sector is likely to face unemployment first, due to the spreading of COVID-19. Chinese economic slowdown since the inception of the virus had impacted on imports in many middle-income countries, even before the virus affected them. Islands and resort cities around the world are likely to face a significant drawback in tourism. Tourism is one industry that experienced the results of the pandemic before any other sector. Since the whole world is in lockdown, tourism is nowhere to be seen, and many employees in the industry have been sent home.
The oil price smash
The most significant oil price drop after the Gulf War in 1991 happened due to coronavirus pandemic. Almost all of the oil’s market rotates between 15 countries in the world. Markets such as oil are a few significant players in the stock market as well. Mainly, OPEC, the US, and Russia control the entire oil market that brings the most significant piece of the pie in any economy. Since the pandemic started, OPEC has discussions with its competitors to reduce oil production to reduce the impact of COVID-19, and one of its competitors when entirely in the opposite direction and started producing more oil.
The increase in oil production and the drastic decrease in oil demand caused the new lows of oil market we have seen amidst of coronavirus. This resulted in a price war between the oil markets. The political tension that birthed during this scenario is beyond the scope of this article.
Instability in financial markets
The financial market is similar to the oil market. Due to the hit from coronavirus, share prices have gone down in drastic volumes and have closed many times. Investors have lost confidence and offload their shares before their anticipated hit takes a strike on their shares. They do this in the hope of not losing more money. When enough investors offload their shares like this, the supply of shares increases in the share market, and the price of a share automatically drops down. A share is a stake in a company that expects revenue. When that drops, the consequences of financial markets work the other way too. Since investors have been moving their stocks out of the stock exchanges worldwide, the safe-haven assets’ prices have been rising. For instance, gold has taken a hike on its price as investors believe that these assets will always have their value, unlike stocks.
Scarcity as a result of panic buying
From masks to toilet papers to hand sanitizers, people are rushing to the stores to buy in ridiculous quantities. These self-fulfilling expectations and behavior have led to scarcity in food and other supplies. Ever since the governments informed of possible lockdowns, people have been lining up in the longest queues to purchase goods at supermarkets and stores. The impact of coronavirus on global economy has reached scarcity in essential commodities. People are trying ‘to be safe, than sorry’ and that has caused them to rush to stores and buy necessary goods. In many countries, essential supplies are already out of stock. As a result of scarcity in supplies, the world will soon have increased inflation where goods rise in their prices at a rate. Middle and low-income families are most likely to be affected by this situation.
Conclusion: Is the global recession in 2020 a brewing storm?
Coronavirus started in Wuhan, China, and ended up as a pandemic in 2020. It has since been spreading over to many countries regardless of age, creed, and color. Who would have thought that an infinitesimal virus would affect the world so severely? The intensity of the virus has opened the pathway to many other crises as a whole. While global health is at risk, the global economy is slowly becoming the next most prominent victim of COVID-19.A storm is inevitably cooking, and we have not seen the real economic downfall yet. But it is coming in full force as a result of the pandemic. Starting from China, the virus has been able to enter many countries in a matter of days. Now it is at an uncontrollable state, putting everyone behind walls.
It is one of the biggest hits in recent human history, and the world has become more vulnerable to a virus than before. If COVID-19 appeared a century ago, maybe the world would not have faced such adverse consequences. Nature, the environment, and the food we take is much weaker than before. Most of the food we intake is processed or pre-cooked with many preservatives. For a long time, it has been weakening our immune system. That is one of the main reasons why people cannot handle coronavirus. The impact of coronavirus on global economy is striking us more than we expect. With people dying left, right, and center, the world is inviting a recession worse than the one in 2008. The sad part is, there is no global response to support each other this time.