Question

In view of your study of macroeconomic principles,Write an article of 3 to 5  pages about of the expected impact of the spread of the Corona virus on the Saudi economy.

Answer 1

Introduction

Economic slowdowns are a cyclical process, in which recessions indeed do happen, and countries in the past also have experienced this and have been able to tackle the same with available fiscal and monetary options.

However, the recent corona virus pandemic has caused some of the greatest economic concerns that have ever existed. As lock downs extend and international travel is not preferred, countries are facing a huge gap in their economic output and the total demand and supply are declining steadily. In context of the Saudi Economy this is explained as follows: -

Case Specifics: -

The Saudi Economy, primarily runs on export of oil and petroleum products. It is one of the most profitable industries for the economy as the cost of production is very low and the reserves are great.

The lock down has resulted in a slump of oil per barrel like never seen before. As economic activity is stalled, people do not demand for oil and the resultant is that the profits for the economy are running dry. The supply has decreased to all time low and so has the international demand for oil in the country.

Saudi also is an importer of food grains, as the terrain is not quite favourable for growing fruits and vegetables in the country. The imports have been steadily declining as logistic supply chains are also hit as a result of the pandemic and import bills are heavier as the cost of food grains increases in the economy.

Thus, when we evaluate the position of Saudi, we come to know, that on one hand the exports of the country would be hit, as the prime exports of oil continue to fall and the economy collects lesser international transactions and currency and on the other hand, the import bill rises which would lead to higher costs of imports into the country.

The next result would be that the Fiscal Deficit of the country would come into picture, and the level of unemployment would rise significantly as industries remain closed. Tourism is seen as another key industry for Saudi and that would surely come to a halt and limit inflow of foreign currency even further.

Thus, the aggregate demand and supply would see a huge impact and the total GDP of the country would decline sharply

Migrants which are stuck in the country will face equal issues as health care worsens and the overall labor productivity begins to decline. The added costs of healthcare would mean that on one hand, the revenue for the country would reduce drastically and on the other its expenditure on these domains rises exponentially.

As the supply lines are further shut, labor force would remain unemployed which will lead to cyclical recession in the economy. A cyclical recession takes place, when low unemployment leads to lower demand and this in turn reduces the supply even further.

The government is experiencing all time lows as far as foreign reserves are concerned. The government in its approach has clearly suggested that it would reduce the budgets as far as possible to ensure that money can remain in the hands of the government up until the economy realizes stability.

Once the oil market improves, and the lockdowns are lifted it is expected that the government will try to expand the economy by increasing the availability of credit and ensuring that demand and supply can be maintained to sustain this rapid decline.

Conclusion:-

We can largely state that the economic factors which will be changed are as follows:-

1) The level of unemployment in the country would rise. This as explained above is the resultant of a slow down in the markets and a decline in the demand for oil from the country. As the demand further declines, people would see large implications as companies would try to contain their costs.

2) The flow of money in the economy would decline sharply as money does not change hands due to the lack of demand for non essential items. The resultant would be that economic activity in the country would see a sharp stop.

3) The price levels in the country would fall down owing to the lack of demand in the economy.

4) Post the lock down is over, the government will increase the supply of money, by relaxing taxes and providing interest free loans to the commercial banks and running other operations which will help the economy regrow.

5) International Trade as described above would decline and exports from the country would fall and imports would become more costly.

Please feel free to ask your doubts in the comments section.