Question

How is the Covid-19 affecting the global economy?

Answer 1

The economic harm caused by the COVID-19 pandemic is primarily driven by a decrease in demand , which means that customers are not willing to purchase the products and services available in the global economy. This dynamic can be clearly seen in industries such as travel and tourism which are heavily affected. Countries have placed travel restrictions to slow the spread of the virus, meaning that many people can't buy flights for holidays or business trips.

Its reduction in consumer demand causes airlines to lose their planned revenue, which means that they will then have to reduce their costs by reducing the number of flights they operate. Without government assistance, airlines will eventually also have to cut lay-off personnel to further reduce costs. The same dynamic applies to other industries, as daily commutes, social events and holidays are no longer possible , for example with falling demand for oil and new cars. The worry is that this will create a downward economic spiral when these newly unemployed workers are no longer able to afford to buy untouched goods and services.

There are also reasons to be hopeful that this worst-case scenario can be avoided, despite the clear danger that the global economy is in. Governments have learnt from previous crises that government spending can counteract the effects of a demand-driven recession. As a result, many governments are increasing their monetary welfare provision for residents and ensuring that companies have access to the funds required to keep their workers working during the pandemic.

Furthermore, the specific nature of this crisis means that certain sectors, such as e-commerce, food retail, and the healthcare industry, can benefit-providing at least some economic growth to offset the damage. Finally, there is the fact that the crisis could have a clear end date when all movement restrictions can be lifted (e.g. when a vaccine is developed). Taken together, this means it is at least possible that once the pandemic is over, the global economy could experience a sharp rebound. There are also several factors that could impact such an economic recovery – for example, a decreased supply of goods and services to satisfy lower demand might cause mid-term shortages and price rises – but there are some reasons to think that some of the more catastrophic forecasts might not come about with the right combination of appropriate policy responses