How Corona Virus affects the world economy

Rahul Sinha

“With the unprecedented shock on the economy due to the global pandemic, countries are struggling to provide for public health facilities and to sustain economic activities”

The corona virus or the COVID-19 has had a great impact on the global economy so far and its quite assured that it will leave its multifarious effects on the future as well. The virus first emerged in the Chinese city of Wuhan last December. It infected more than 4.18 million people causing 286000 deaths as of 12/5/2020. The fear has rocked the economies worldwide and the financial forecasts have been estimated to fall to a great extent.

To contain Corona virus, the Chinese authorities locked down cities, restricted movements and suspended business operations for an indefinite time period. This step is now followed by the countries which are in a vulnerable condition. The overview of the epidemic is quite significant and can be witnessed by its rapid spread. The number of people affected is not the key economic issue, but the level of disruptions to the economy counts the most. The fear has also impacted the stock market plunging stock prices and bond yields. The supply chain consequences could be felt and some sectors are affected more than others. World’s second largest trading nation China’s exports fell by 17.2% for January and February, this indicates the situation that the global markets linked with China are facing currently.

The travel and tourism will be the hardest hits. The estimated losses of global air carriers range between $ 63-113 billion. The forecasted revenue from air passenger traffic worldwide in 2020 before the spread of the pandemic was 581 billion dollars and after the spread of the pandemic was recorded to be -314 billion dollars. As per OPEC the oil prices are at its lowest since 2001. The annual global GDP is to fall to 2.4% from an already low 2.9% in 2019 with growth possibly being negative in the 1st quarter.

India figures among the 15 most economies with a loss of 348 million dollars, due to slowdown and its trade ties are dominated by the Chinese markets. The Reserve Bank of India’s monetary policy committee has cut the repo rate (the rate at which the banks borrow from RBI) by 75 basis points to 4.4%. The Finance Minister, Nirmala Sitharaman unveiled a RS 1.7 trillion relief package aimed at meeting the basic needs of the poor who have faced the brunt of the unprecedented lockdown announced by PM Modi. On 12/5/2020 a special economic package of Rs 20 lakh Crores (nearly 10% of the total GDP of India) has been announced under the Atma Nirbhar Bharat Abhiyan.

The policy makers and global leaders have also geared up in combating the virus through an economic perspective. It has been estimated that the cost of the pandemic is going to be very large. Low cost actions such as promoting hygiene practices are good for the start but other actions like the quarantine and other interventions are cost effective. The economy of the nation will also be in distress but we can recover from the same if we work together considering the losses the producers and the consumers faced due to the outbreak. In this condition goods must not be hoarded and consumers should behave rationally and responsibly as someone’s excess demand may lead to someone else’s unfulfilled demand. 

Rahul Sinha is a BA Economics (Honours) student of St. Xaviers University, Kolkata.

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May 16, 2020