Question

In late 2019, a novel coronavirus was causing infections in China. The virus had close virological characteristics to the coronavirus that caused SARS (SARS-CoV) and was named SARS-CoV-2. Even though the SARS-CoV-2 has been less fatal than SARS-CoV, SARS- CoV-2 has been much more infectious. Shortly after the Chinese outbreak, other countries also began reporting cases. The evolving epidemic was officially declared a pandemic by the World Health Organization (WHO) on 11 March 2020.

In early February 2020, we undertook a study that applied data from historical pandemics, information on the evolving epidemic in China and our experience from modelling SARS and Bird Flu to explore the potential global economic implications of COVID-19 under seven plausible scenarios in a global economic model. “The global macroeconomic impacts of COVID-19: seven scenarios” was released on 2 March 2020. Early results were made available to policymakers in major economies and international institutions. At the time the paper was written, it was still uncertain whether the outbreak would translate into a pandemic. Thus, to estimate what could be the likely costs of a pandemic, three of the seven scenarios explored the economic costs to the world if the outbreak only occurred in China and four of the scenarios explored the global economic costs if a global pandemic occurred but at varying degrees of attack rates and case fatality rates.

The evolution of the pandemic and the economic implications continue to be highly uncertain. However, as new information emerges, notably greater understanding through scientifically based interventions in some countries and outright failure in others, the nature of the uncertainty has changed. Initially, uncertainty was about how close COVID-19 would be to the historical experience of pandemics. After six months, the concern is now about how frequently the pandemic might recur and how high the economic costs of responding or not responding in some countries might be. Policy in many countries initially was designed to contain the virus and to minimise economic disruption, particularly in the labour market. The focus now is how to open economies hit with a massive economic shock and how economies will adapt to the post-COVID-19 world. It is uncertain whether a vaccine will be available in time to prevent more pandemic waves and, if not, what would be the least costly option of managing them. It is an open question of whether lockdowns are the right option for managing recurring waves or if it will be possible for people to adapt to long-term social distancing and improved hygiene practices.

In this paper, we attempt to guide policymakers determine how different responses might change possible economic futures. In addition to our previous experience in modelling pandemics and particularly COVID-19, we capitalise on the novel, yet imperfect, information on cases and responses to the pandemic worldwide.

The paper is structured as follows. The next section places the current study in the context of our previous study and other recent studies conducted by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD) and the World Bank on economic repercussions of COVID-19. Section 3 summarises the G-Cubed model used in the study. Section 4 explains in depth how and why different scenarios and shocks were constructed. The results from the simulations are presented in Section 5 before we conclude and present possible policy implications arising from the study in the final section.

Provide a brief summary of the information in the source. Explain how this information is relevant and explain that this information shows that the problem exists, that there’s an effective way to solve the problem, or that information shows ways to overcome inaction.

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The European Commission estimations have recently shown that EU countries would have entered in recession this year with a fall of 2.5 % GDP average rate even if the pandemic crises had not existed. In this paper the author intentions are to analyse the magnitude of the present crisis by emphasizing the main features that are uncommon with other crises.

Nowadays it might be a proper solution to build a defence system around EU if we rely on three types of scenarios: on short term until the passing from the infection peak, on medium term until the economic and social imbalances could be stabilised and on long run with the economic recovering from a minimum point reached to new targets expected to be suitable in the new circumstances. In the country case, it is important to calculate the real economic losses in terms of trade and investments. We see that the economic disparities are stronger now than in the 2008 financial crisis due to the rapid contagion.

The main impediments triggered by the actual pandemic on the economy and the society in Romania and in many European countries are the following:

* The internal economic activity is affected by lockdown circumstances.

* The returning of a massive workers from overseas put pressures on the social protection funds and also on medical care services particularly for Romania;

* The social pressures induced directly by the lockdown in education, culture, sport and entertainment would provoke a harmful effect on general productivity;

* Possible disruption in energy, water and raw materials supply;

* The shortage of internal financial resources caused by huge expenses and no inputs would increase the budgetary disproportions.

* Diminishing of exports absorption capacity of the most affected of SarsCov-2 countries and the need of production adapting to the new demand level.

* The high risk of economic imbalances could outbursts from: rising of unemployed people, primary resources prices evolution (petroleum, gas, agri-food), aggressive acquisitions on Stock Markets;

* Risks on the economic crisis and the overlapping between this and the pre-existing agricultural cycle.

* The harmonising of world economic activities is occurred with different oscillations until the steadiness is reached. This is the reason why the projections of the future oscillatory economic evolution are difficult to be calculated.

* The role of state, and of EU and international institutions is to provide stability.

At the global level, the answer should be in line with the more important task to ensure a rapid and efficient capacity of response for the actual and future challenges.

At the macroeconomic level it is vital lessening the negative effects of Stock Exchange worries, and backing small and medium firms in a sense to stimulate their activity by creating a proper fiscal and financial environment for the new economic reality.

The Romanian economy has been affected by the external trade channel on the basis of the high level of trade integration with the rest of UE states (roughly 70% of Romanian total trade is oriented to EU). The most affected by the actual pandemic are EU countries with highest GDP contributors to the EU budget: Germany, France, Italy and Spain. The lockdown of all these countries during March and April 2020 and the frozen of investment plans have been creating high repercussions on overall exports by channel of contagion spread on different countries Imports would be also affected by the disruptions on the Global Value Chain in the same time. Also, the process of replacing the supply parts is difficult especially for narrow specialisation developed the recent years.

A parallel between the 2008-financial crisis and the present crisis emphasizes only some features. First of all, it must be observed that the 2008-financial crisis provoked a high global threat that has been felt in the last few years after the eruption. It was difficult for developed countries especially for some UE member states (PIIGS countries especially) to solve the fiscal and debt burden. Nowadays, a new type of global threat has arisen 12 years after the 2008 financial crisis. This time, the primary source is a medical one, spreading at a global level. Still in both crisis we observe the rapidly spread worldwide even we talk about a virus or financial contagion.

We observe also that the economic effects are stronger now than in the 2008 financial crisis due to the fast contagion. The 2008-financial crisis had passed on Europe in several months and extended gradually in entire EU from USA. The EU financial system had resisted to solve the crisis and several financial programs for supporting the most affected sectors had been adopted (banking and automotive). Since September 2012 other unconventional measures have been approved by ECB. In addition, the euro zone launched the European Stability Mechanism that replaced the European Stability Fund. State aid was a practical solution at the moment of international financial eruption in EU. The EU state aid for financial sustenance totalled 1.6 trillion Euros during the last quarter of 2010. The great part of financial aid was given in the form of government guarantees for liquidity increasing that amount to 9 per cent of EU GDP. The banking recapitalisation and shares acquisition equalled almost 3 per cent of whole EU GDP, an amount of 300 billion euros respectively.

The EU guideline of adopting measures taken by Euro members states with the general task of banking functioning guarantees by the public funds in the 2008 and 2009 period has consisted of four official communications. The fiscal burden has been proved problematic especially for the business environment for a long period in the absence of financial support. The sustainability of those deficits was critical in some eurozone states, especially those that has been called PIIGS. Financial market players decided to rise the interests on loans to cover souverain debt as a consequence of continuing fiscal burden. The bond yields have been increasing after 2010 for those risky countries.

The eurozone countries signed at 7th of May 2010 an Agreement of Stability, Unity and Integrity for adopting necessary measures for fiscal criteria stipulated in the Stability and Economic Growth. All eurozone countries except Estonia and Luxembourg have agreed to adopt programmes of reduce the fiscal burden under the excessive deficit procedure triggering.

3Measures adopted by EU up to 2020. The Romanian case

The speed of contagion in the actual pandemic crisis on some EU member states has determined the necessity of adopting new state aid regulations for sustaining the most sensitive sectors. The communication on the economic aspects of Coved -19 crisis was published by European Commission on 13 March 2020 revealing the main economic financial support measures that cannot be exclusively covered entirely by the European budget. Taking into consideration the internal legislation of EU countries we notice the state aids have been used for supporting certain sectors. Since the mid of March 2020 substantial financial packages have been adopted by the governments in some states where the pandemic crisis has spread rapidly.

In Romania the main trade partners from EU, namely Germany, Italy, France and Spain have been seriously prejudiced by the pandemic crisis that already have hit the bilateral exports and imports flows. If we add the substantial global value chain disruption and the significant part of China on the intermediary inputs chain for products like microchips, auto parts and chemical products we observe a major drop of global trade in 2020. Romania among other EU member state is not so affected by the reduction of Chinese trade flows, the share of Chinese inputs on total incomes of Romanian firms being of only 2.8% that is much lower in comparison with Hungary (7.5%) and Holland (7%).

A complete landscape of the pandemic crisis impact on world economy is difficult to be assessed because is too early. The projections published by the international institutions have been changing in accordance to the volatile data. A possible economic impact could be advanced concerning the imminent economic recession not only in the euro area but overall, in the world economy. In addition, if we take into consideration the financial markets evolution it depends mostly by the supervisory and regulation

The impact of the actual pandemic crisis on the economy and financial market would be quite high after two months of lockdown for some many of the world economies. This unexpected and unorthodox measures will cause a very deep recession. Some of the international investors and experts project a slowdown similar with those from the Great Depression from the 1929-1933 period. For now, is pretty hard to estimate a valid long and medium period prognosis, having in mind the dynamic change of the real medica facts that affects directly our life. At least on short time we observe programmes of quantitative easing in many countries aiming at increase the liquidity in economies.

Returning to a new normality is a necessary step that requests a dynamic and complex flow of collecting and information processing data from the medical care, in finding a proper vaccine and the evolution of the economic increase and trade. All this change would indicate a new picture of tactical alliances with the aim of regaining the breath after the deep recession. We could estimate better the real situation of downfall only after the official economic data of world exports, imports that reflects the level of offer and demand.

Provide a brief summary of the information in the source. Explain how this information is relevant and explain that this information shows that the problem exists, that there’s an effective way to solve the problem, or that information shows ways to overcome inaction.

Answer 1

In this source information told about the COVID 19 disease which was basically originated from China Wuhan city. The corona virus character matched from SARS disease virus although it is less fatal but more sever in spreed of the infection. This disease was announced as pandemic by WHO on 11 march 2020. Now the question is that how the wold will fight against this pandemic situation, is hand hygiene and mask will protect us from this pandemic, is vaccine will be available or not or we have to live with this pandemic forever, will economy get it's prior speed soon or it will take a long time. Social distancing will be effective forever or not.

Economical disparities are now stronger than 2008. GDP had fallen of the world's developed countries. The main impediments triggered by the actual pandemic on the economy in society of Romania and many European countries  the internal echinomic activity is affected by lock down circumstances. Although whole effect of this lock down is not possible too early to calculate. The returning of the massive workers from overseas put pressure on the social protection funds and also on medical care services particularly for a Romania. Possible disruption in energy, water and raw materials supply. The speed of contagion is the actual pandemic crisis on some EU members states has determined the necessity of adopting new state aid regulations for sustaining the most sensitive sections. Chinese trade flows the share of Chinese inputs on total incomes of Romania firms being of only 2.8 percent that is much lower in comparison with Hungary and Holland. Thus it become too complicated to evaluate the effect of this global crisis.