The Economic Consequences of Coronavirus (part 1)

what are the economic consequences of covid-19?

Coronavirus has had a negative effect on economic growth. Lockdown measures imposed by governments the world over have seen disruption to global supply chains, a decrease in international trade, an increase in unemployment, and a decrease in investment and global wealth in general.

Coronavirus has decreased global wealth

Probably the easiest way to summarise the economic consequences of coronavirus is to look at the impact it has had on Global Wealth, which I’ve already summarised in this blog post here.

Global Wealth has decreased by $8 trillion compared to where it was projected it would have been before the outbreak of the pandemic.

Personally I find this the most useful individual indicator, as it just takes one static gross snap shot figure and compares it with another, it’s very easy to understand.

Coronavirus has pushed most countries into recession

The latest data from the International Monetary Fund shows most countries with less than 0% GDP growth for 2020, so negative growth, that’s all countries in red below, accessed November 2020.

However, we need to look at a lot more figures to get a fuller picture.

Further reports emphasise the near universal negative consequences of Coronavirus:

This report (June 2020) by the World Bank predicts a 5% decrease in global GDP over the coming year, the largest decline since the 1870s, with all regions and countries showing significant cuts to their expected (pre-covid) economic growth rates.

The consequences of this economic slowdown which will be declining rates of investment, job losses and a corresponding decline in the rate social development in many developing countries.

Some sectors have been especially badly hit – the price of oil fell drastically with the Pandemic, but the agricultural sector has not been so badly effected. As a general rule, you might say that the less essential the sector, then the more it has been affected!

This report highlights that no country will escape the effects of Covid-19 unscathed, but China and Asia will probably fair better than the rest.

How Coronavirus Disrupted Global Supply Chains

The immediate impact of Coronavirus was a significant disruption to global supply chains, meaning that many global retailers struggled to maintain stocks of their products.

Supply chain problems also meant that manufacturers had to slow down or cease production of their products altogether, because they struggled to source raw materials.

Lockdown measures imposed in China in early 2020 were the main cause of this, because China is the world’s biggest manufacturer – it not only produces a lot of ‘end products’ (such as iPhones) but it also manufactures a lot of components that factories in other parts of the world need in the products they produce.

To find out more, this article by Bloomburg outlines how disruption to global supply chains impacted a variety of businesses all over the world – from watchmakers in Hong Kong to Lobster fishermen in New Zealand, it does a great job of highlighting the truly global effects of the Pandemic.

According to analysis of data on Tradeshift (a global supply platform) by the World Economic Forum global trade fell dramatically in February – April 2020. Chinese trade transactions fell by over 50% in March 2020, and the United States and Europe followed suit with a 26% drop in April, and a 17% drop after that.

The article suggests that as Chinese trade declined because of lockdown measures, global manufacturers struggled to source materials from other countries and so their production also slowed down.

What Coronavirus has revealed is that the world has become very dependent on China as the source of products – and when it goes into lockdown the rest of the world suffers.

The article further suggests that manufactures will probably look to diversify their supply bases in the future so as to be less dependent on China – and countries such as India, Vietnam and Mexico will probably be the main beneficiaries from this.

Another possible change might be more production in developed countries, further decentralising global supply networks,

So maybe the long term impact of globalisation will be a much more diverse form of economic globalisation (with China being less dominant) and maybe a reversal of the globalisation of manufacturing if we end up with more manufacturing taking place in developed countries?

The effects of Coronavirus on Transnational Corporations

A 2020 World Bank survey of Multinational Enterprises found that more than 90% had been negatively impacted by the Coronavirus Pandemic.

75% reported decreasing reliability of supply chains (meaning more difficulty in producing stuff) and decreasing worker productivity.

Half of MNEs surveyed have cut investment in developing countries by an average of 30% and 40% have reduced employment by an average of 16% – so overall that’s an average reducing of 15% investment and around 7% in employment.

The report (linked above) calls on governments to provide tax breaks to MNEs as well as more deregulation, so in other words more neoliberalisation, which is unsurprising coming from the World Bank.

Not all sectors have been affected equally

As has been reported widely, sectors of the economy associated with travel and leisure, such as the oil and aviation sectors have been affected very badly, with the number of flights taken being significantly reduced.

However, one sector which is doing better, with the hope of a vaccine coming soon, is the Pharmaceutical sector:

NB – these aren’t the only economic consequences of Coronavirus – I will cover the human cost in a separate post, in which I focus on the disruption to people’s working lives – the small enterprises struggling with lockdown measures, and how so many people are struggling to cope with reduced income and job losses.

Selected Sources

World Economic Forum: Here’s how global supply chains will change after COVID-19

Bloomburg: The Virus is interrupting Supply Chains

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