HOW COVID-19 IS AFFECTING TODAY’S ECONOMY
Towards the mid of March 2020, WHO (World Health Organization) characterized coronavirus as a global pandemic, pointing to approximately 3 million infections and 208,000 deaths in around 200 territories and countries. Other than becoming a health crisis, covid-19 has also greatly affected the world economy. People across the world have already experienced significant economic effects due to business closure, loss of lives, the fall of the tourism industry, trade disruptions as well as reduced productivity. However, covid-19 has acted as a “wake up” call for all leaders to increase or strengthen cooperation on pandemic and disaster preparedness and to provide adequate finance for global collective actions. In the previous decades, ample information was always available on the health and economic costs to expect in case of disease outbreaks; however many countries have failed to deeply invest in preparedness and preventive measures that mitigate risks that comes with large epidemics. Furthermore, the pandemic has caused dramatic loss of lives globally, thus presenting unprecedented challenges to different fields such as; public health, employment world and on food systems. Also the social and economic disruption as a result of coronavirus is devastating, i.e. millions of individuals are at a high risk of becoming extremely poor while the estimated number of malnourished people (around 69 million) could rise to 132 million people by next year. Therefore this paper discusses how Covid-19 is affecting today’s economy in terms of unemployment, reduced demand and supply, and disruption in society.
Due to increase in coronavirus infections governments are restricting citizens from accessing theatres, in-dining restaurants, non-essential businesses, retail stores, concert halls, and any other business where a lot of people congest risking contact with each other. Most of these closed businesses send their employees home without pay. Furthermore, health experts and officials issued a warning to citizens to say at home and avoid participating in activities that will require them to contact others.[1]. On the other hand, many business have closed due to fear of contracting the virus or to protect their employees and their consumers. For example there worldwide shutdown of all professional sports activities. The employees who contract the virus in the running businesses are asked to self-quarantine for 14 days, eventually bringing financial challenges to employees who are given a sick leave without pay. The unprecedented challenge of coronavirus is causing economic ripple impacts globally as many people are inexpediently finding themselves home out of work. This has the potential of causing a significant rise of unemployment cases. According to page 146 of DPE a government has the responsibility of changing the country’s economic status[2]. However different governments are coming with methods of addressing unemployment issues facing their citizens and also protecting the people who are not in a position to work again. Some ideas in policymakers minds include increasing the number of employees’ paid leave days, creating unemployment benefit insurance programsfor surges in demand and helping businesses transition to full-time teleworking[3].
Covid-19 has affected demand and reduced supply due to loss of lives. The virus slowed down the world economy, making many people lose jobs while others working for less hours thus making less money. In such cases decreased incomes usually leads to lower quantity of many goods and products regardless of the price[4]. Demand deficiencies have increased from global expected and actual high economic uncertainty and income risk. Also reduced demand has materialized due to covid-19 supply side disruptions, heath risks and input and output propagation[5].However as Covid-19 pandemic continues to disrupt globally countries through policy makers are coming up with policies that encompass indirect to direct transfers to consumers, enhancement of social security or tax cuts to buffer reduced demand. In DPE (Page 42), Adomait argues that the most fundamental issue in a county’s economy is inflation is handled over time[6]. Inflation is usually caused by people spending excessively to avoid expected hiking of prices, eventually creating uncontrollable cycle.Good policy measures can provide suitable stability for demand[7]. The scope and design of effective policy hinges on the channels through which the pandemic impacts economic activities, particularly on the relative significance of the forces working on demand or supply[8].On pages 70 to 82 DPE explains how labour affects unemployment rates. Adomait argues that policies are meant to weather disruptions for non-economic reasons in the supply of goods and services such as broken international supply chains or reductions in labour efficiency due to Covid-19 containment measures[9].
Furthermore the coronavirus has negatively affected the society by causing direct effects on their income due to factors such as workplace absenteeism, premature deaths, decrease in productivity, and negative flow of supply[10]. Also with increased closure of companies and supply disruptions the manufacturing productivity is slowing down lead to increase of unemployment in the society. Additionally, due to health inequalities in society (particularly in countries with no universal healthcare coverage, coronavirus pandemic economic impacts will be diversified across the country’s income distribution[11]. For example, employees mainly the office workers will have to be flexible to transition into flexible working arrangements due to restrictions, while majority of the transport, industrial, retail, tourism, and retail workers will continue facing work reduction because of low demand in the market for their products and services and community restrictions.
In conclusion, communicable and infectious diseases like covid-19 have proved to have the potential of inflicting severe financial and economic costs on global and regional economies. A global collective action is needed to deal with threats such as epidemics and disease outbreaks, globalization, environmental change and urbanization. Although most of the develop countries like North America and Europe have strong health systems and real-time surveillance for managing the spread of infectious diseases, high-risk and low-income countries needs improvements in their public health systems. This includes; improvement of laboratory resources, animal and human surveillance and workforce preparedness. This can be easily done through maximum use of natural resources and small boost from international funding. However, as coronavirus continues to negatively affect service and manufacturing industries and of disrupt economic activities particularly in various counties it is highly likely that the volatility of financial markets will increase. It is still unclear whether the pandemic crises will have long lasting negative impacts on the world economy or it will only cause short-term economic and financial consequences. Moreover, sue to high globalization, economic interconnectedness and transportation connectivity, many countries finds it costly and difficult to mitigate the transportation risks and contain the disease once it spreads to multiple locations. This therefore warrants global investment and collective action towards vaccine distribution and development. Countries should also come up with more reliable preventive measures such as creating contact tracing techniques both at international and local levels and increasing and upgrading real-time surveillance. Lastly, as infections and disease outbreaks are likely to reoccur in the future global proactive actions are needed to protect lives and the economic prosperity.
Bibliography
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Eichenbaum, Martin S., Sergio Rebelo, and Mathias Trabandt. The macroeconomics of epidemics. No. w26882. National Bureau of Economic Research, 2020.
World Health Organization. “Impact of COVID-19 on people’s livelihoods, their health and our food systems.” World Health Organization. https://www. Who. Int/news/item/13-10-2020-impact-of-covid-19-onpeople’s-livelihoods-their-health-and-our-food-systems (2020).
Baqaee, David, and Emmanuel Farhi. Supply and demand in disaggregated Keynesian economies with an application to the Covid-19 crisis. No. w27152. National Bureau of Economic Research, 2020.
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[1] World Health Organization. “Impact of COVID-19 on people’s livelihoods, their health and our food systems.” World Health Organization. https://www. Who. Int/news/item/13-10-2020-impact-of-covid-19-on people’s-livelihoods-their-health-and-our-food-systems (2020).
[2] Adomait, Eveline, and Richard Maranta. 2013. Dinner Party Economics. 2nd ed. Pearson Education Canada.
[3] Eichenbaum, Martin S., Sergio Rebelo, and Mathias Trabandt. The macroeconomics of epidemics. No. w26882. National Bureau of Economic Research, 2020.
[4] Baqaee, David, and Emmanuel Farhi. Supply and demand in disaggregated Keynesian economies with an application to the Covid-19 crisis. No. w27152. National Bureau of Economic Research, 2020.
[5] Guerrieri, Veronica, Guido Lorenzo, Ludwig Straub, and Iván Werning. Macroeconomic implications of COVID-19: Can negative supply shocks cause demand shortages? No. w26918. National Bureau of Economic Research, 2020.
[6] Adomait, Eveline, and Richard Maranta. 2013. Dinner Party Economics. 2nd ed. Pearson Education Canada.
[7] Guerrieri, Veronica, Guido Lorenzo, Ludwig Straub, and Iván Werning. Macroeconomic implications of COVID-19: Can negative supply shocks cause demand shortages? No. w26918. National Bureau of Economic Research, 2020.
[8] Balleer, Almut, Sebastian Link, Manuel Menkhoff, and Peter Zorn. “Demand or supply? Price adjustment during the Covid-19 pandemic.” (2020).
[9] Adomait, Eveline, and Richard Maranta. 2013. Dinner Party Economics. 2nd ed. Pearson Education Canada.
[10] Alon, Titan M., Mink Kim, David Lagakos, and Mitchell VanVuren. How should policy responses to the covid-19 pandemic differ in the developing world? No. w27273. National Bureau of Economic Research, 2020.
[11] Guerrieri, Veronica, Guido Lorenzo, Ludwig Straub, and Iván Werning. Macroeconomic implications of COVID-19: Can negative supply shocks cause demand shortages? No. w26918. National Bureau of Economic Research, 2020.