Question

What impact is the COVID crisis having on the global economy? How long will it last? What are the current policy responses around the world and how effective will they be?

a short video from the respected weekly magazine "The Economist" and Harvard panel on this topic. Please watch these videos and share your thoughts.

Answer 1

The Corona Virus Pandemic has caused deep distress among countries due to its economic impact on the society at large and the expected recession which is to follow because of the same.

As establishments across most countries remain shut, except for essential items, most others have seen a significant reduction in overall demand. As the demand is lower, producers make significant losses over unsold inventory as well as lower production levels. The end result being the need to fire a large portion of the staff to maintain profitability and long-term viability,

Economists have correctly stated, that a recession like none other is seen in the market place, and the aggregate demand for goods and services, the overall gross domestic product and the total profit which firms make will go down substantially.

Now, coming over to how long the situation would last, it is predicted that unless, a cure or a medicine is found for the same, the economic impact of the situation would not cease to exist across countries. The other thing is that countries such as New Zealand have become Corona Free with extended support from the government and strict measures to control the spread. This has allowed for their economy to return back to its normal state. However, any country which sees active infections would find it increasingly difficult for it to recover its economy as establishments would remain shut, and the country would fail to grow.

The government and central banks policies towards the situation has been such, that it is known as expansionary fiscal and monetary policy. Through this policy the governments of most countries have reduced the taxation which they charge and have tried to increase their expenditure in sectors such as health care, and have also resorted to direct transfers to the needful so as to correct the economy.

The Central Banks on their part are reducing interest rates which they charge from the commercial banks in an attempt to try and increase the currency in circulation and have taken other measures such as reducing the minimum required cash which commercial banks must hold at all times with the Central Bank which is also known as the Cash Reserve Ratio.

All these activities are attempted to allow the economy to have sufficient cash in order for people to demand more goods and services. For example, a reduced tax burden allows people to have additional income which promotes them to consume more goods and services. Also, as the central bank reduces interest rates and the situation outside relaxes, people can avail loans at a much cheaper rate and return back to normal conditions.

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