EFFECT OF PANDEMICS ON GLOBAL ECONOMY
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Effect of pandemics on the global economy
Pandemics are rare situations, and it’s a challenge to predict the exact economic losses they cause with only three pandemics recorded in the 20th century. Pandemics are the inevitable attendants of economic progress, and the economic consequences of a pandemic are unambiguously negative. The effect of a global pandemic on the economy varies based on the population, and that is affected, the number of countries affected and how powerful they are, how hard it hits, and what kind of social interventions are necessary to stop the spread of the disease. Infectious diseases account for a quarter to a third of the world’s mortality, being the leading cause of deaths globally. The outbreaks of these diseases can easily get transmitted to many countries, leading to economic and regional instability, as demonstrated by HIV, H1NI influenza in 2009, the Spanish flu, the SARS epidemic, and the Covid-19 pandemic. The identification of the causative agent of these emerging diseases is hard at first, which results in widespread infections and deaths before physicians and scientists encounter and study the disease. The development and approval timeline of new drugs takes a long time, enough for the infection to have spread, causing many deaths and having a big effect on the global economy.
In the case of a global pandemic, industries, and businesses all over the world are affected by damages caused. Shops, supermarkets, restaurants, and bars start to lose customers, and in some cases, they shut down. Unnecessary traveling slows down or stops, leading to a lack of revenue for airlines and cruise-ships operators as well as curtailing the income of small businesses. Unrelated industries are affected by secondary effects, for instance, having few or no customers as shopping slows down. Banks, SACCOS, and other organizations that offer loans absorb large amounts of loan defaults from their customers, who might have lost their jobs and have no other source of income. Investors of oil companies start to realize there is a decrease in demand for their products, which results in the plunging of oil prices. Due to the fear of the unknown, families and individuals with stable jobs will also start to limit their purchases, and also the financial aftershock isn’t able to be contained.
All pandemic crisis increases the demand for medical services and pieces of equipment globally. Since many patients need equal medical attention, the doctors and nurses in hospitals become loaded with work, and at some point, it becomes impossible for them to attend to all the sick patients. The government is forced to hire new professionals, which ends up increasing its expenses. Medical pieces of equipment such as; measuring kits, ICUs, and drugs required for treatment of these diseases become scarce, forcing the government to import the required pieces of equipment, which might be at high prices or are scarce worldwide. The scarcity and high prices of these pieces of equipment inconvenience the developing countries that cannot produce their products or purchase them at the set prices. The government sets aside money for the medical field, forcing them to stop other projects in the country, which leads to loss of jobs to some citizens and hence reduces the National income of the nation.
Workdays are lost as parents fall ill, and in other cases, children get sick, forcing parents to stop working to take care of them. Work in different fields stops or slows down, reducing the normal revenue generated, hence affecting the overall GDP of the country. The working hours in various countries fall due to the partial or total closure of businesses and lack of market or reduced customers forcing them to open for fewer hours as compared to the usual. The total work submitted in a day by each employee or labor worker reduces, which means that the average revenue earned in a nation also decreases. All these harm the National income of nations leading to an adverse effect on the global economy.
During a global pandemic, many people of different ages lose their lives inclusive of middle-aged people and a younger age, that is, the youth and children. Due to this, nations lose their current and future labor force, since people at the working-age dies and the youths and children who would have taken place in a few years dies too. Even after conquering the pandemic, nations still feel its impact, since many jobs are left vacant with no people to fill up the spaces left by the dead. Various businesses, both small and large, might shut down due to the deaths of their owners, investors, and managers. Some countries also lose some of their leaders, bringing in other expenses on elections after the pandemic. The National Income of a country will drop because of the reductions in the labor force and closure of businesses and corporations.
Global pandemics results in closure of airlines to limit the spread of these diseases, which stops international travel of passengers and cargo transportation. Measures are imposed in different nations by governments on International travel, hindering exportation, and importation of commodities. Due to this, they have no markets for products outside the nation. For businesses that rely on imported raw materials and products face a challenge due to the unavailability of stock. Some nations’ whose major source of income comes from exported agricultural or industrial products, faces a big challenge as their economy falls due to lack of the revenue generated from these exported goods. Services such as tourism are massive as a result of international travel shutdown. Both local and international tourism is hindered due to the set measures on movements all over the world. Many African countries depend on tourism as a source of income, and therefore their economy tends to get affected widely.
The service industry is one of the significant sources of growth and employment for many countries, including the most powerful countries worldwide. During pandemics, retail sales decline sharply due to the lack of customers in shops and other businesses. Even online shopping is affected since many customers have low or zero income, and it’s not only about movement restrictions. Customers may, however, not resume their spending rates even after the pandemic is over, and measures are lifted, hence leading to a slow improvement in the global economy. A hit to the service industry is also experienced globally, with businesses in real estate and transportations experience a vast fall in activities.
Manufacturing firms are forced to shut down or open under restrictions on getting the supply of the intermediate goods and materials required for their production. A reduction in the demand for products and services is also one of the challenges that manufacturers face. The firms are then forced to produce less, which might result in loss of jobs for some of the employees. Processing industries that deal with perishable goods face a considerable problem. Since transportation is limited both locally and internationally, they lack a way of transporting the raw materials they require from farms and other extraction areas to the place where the factory is situated. They face the same challenge during transportation of their end products to the markets and towns where shops and supermarkets are located. The products might go to waste since they are perishable, and the market is limited due to a lack of consumers. The processing industries undergo huge losses and might face a temporary closure. The global trade volume falls with high percentages, and all regions suffer double-digit declines in exports and imports.
Even though the human costs and instant damages caused by pandemics are dreadful, the long-run effect on the global economy is not always so. The Black Death that carried one third to two-thirds of Europe’s population is proof that the economic impact was not that dreadful. There was a sudden scarcity of workers, which led to a rise in the laborers’ bargaining power, contributing to the breakdown of the feudal economy. The real incomes of the workers rose sharply, which affected the continent from 1347 to 1351. However, the population grew again due to increased revenue, which eventually squeezed incomes back to their normal levels.
Something similar to the Black Death in Europe occurred in the aftermath of the Spanish flu that happened from 1918 to 1920, having killed around 50 million people. The industrial economies of the early 20th century in the affected states grew faster in its aftermath. One additional death per thousand people led to an increase in the average annual growth of real income per person for the next decade. With lasting effects on growth and productivity, the Covid-19 pandemic we are facing now is too low to affect real wages but might force firms to use new technologies to operate smoothly while warehouses and offices stay empty. The Covid-19 pandemic may not affect trade as much as the Spanish flu. However, it might be identified as one of the few global epidemics to cause globalization that might result in a new era in global trade.
Work cited
Barro, R.J., Ursúa, J.F., and Weng, J., 2020. The coronavirus and the great influenza pandemic: Lessons from the “Spanish flu” for the coronavirus’s potential effects on mortality and economic activity (No. w26866). National Bureau of Economic Research
McKibbin, W.J., and Sidorenko, A., 2006. Global macroeconomic consequences of pandemic influenza (p. 79). Sydney, Australia: Lowy Institute for International Policy.
Verikios, G., Sullivan, M., Stojanovski, P., Giesecke, J.A., and Woo, G., 2011. The global economic effects of pandemic influenza. Centre of Policy Studies (CoPS).