Question

Briefly discuss some possible impacts of the coronovirus on long-run global growth in the context of growth model.

Answer 1

There is more than 1 million confirmed cases of the COVID-19 coronavirus global, industries are handling with loses lots of revenue and disturbed supply of labour and material input. It is caused to factory closures and quarantine actions to prevent the spread across the globe. It barricade the movement of people and goods as traveling is being stopped. Unemployment is rise steeply. Particular while countries and providing fiscal and monetary stimulus to relieve the economic load on citizens. Global value chains have come under since the outbreak of the COVID-19 epidemic in China, and even more so since the virus turned into a global pandemic. Some analysts expect a major reorganising of the global production system as a result of the pandemic, which was earlier elicited by the US-China trade war.

Decline in production growth, signifying an overall economic slowdown started well before outbreak of the COVID-19 crisis. Manufacturing sector are struggling to gain 1% growth and which is under 1% in recent quarter of 2019. Therefore, world GDP growth can be expected to drop in the coming time. Three major engine of economic activity demand, supply, and finance are highly vulnerable. In long-run it may take cause misbalance of economy. While huge fiscal package leads to huge fiscal /revenue deficit. As seen 6.6 million Americans filed unemployment claims last week. Hence the long-run implication is the recovery by way to salary cut, or increase tax rates to recover short-run deficit.

Recent lower private spending in short-run may partly offset by increased government spending. But there is a fear of huge demand deficiency in long-run due to lower investment demand, cut in other government spending and low spending by unemployed people. The emerging countries are seen huge capital flight and reversal of foreign investment and FDI. China, Europe and the United States are mostly affected by direct effects on health condition.

Heavy loss on the part of private companies may cut investment and unemployment. So, it long-run it will take lots of time to recover and may increase the burden of middle-income class. Particularly global supply chain connected with china, is starving for material import and machinery. Over the long-run lower international price may reduce export earning of agricultural rich country. So, it has long-lasting effect on health expenditure, reduce employment and closure of small manufacturing and start-up. The confidence of business has demolish and so key challenge will be to generate employment and investment in the long-run.

Decline in investment leads to less capital per worker than before, therefore poorer: per capita income is will be ultimately lower with constant population growth. Given in solo growth model decline in investment will shift the sy investment per worker curve to down and new equilibrium at lower capital labour ratio and per capita income.