COVID-19 Pandemic Impact on World Economy

Zunaira Zahoor

Keywords

COVID-19 pandemic • Monetary and fiscal policy measures • liquidity provision

Introduction

A virus named Severe Acute Respiratory Syndrome (SARS-CoV-2) causes a Corona virus at the end of 2019. The occurrence of this respiratory infection was first exposed in Wuhan city of China. Dr. Li was the first person in the early days of his outbreak to detect corona virus epidemic. During his investigation, he realizes that there is a virus such as SARS that was a global 2003 epidemic. Corona viruses originated in Hunan marketplace for seafood, and victims were hospitalized with quarantine.

Dr. Li sends messages to his fellow medical practitioners, but after three days, Wuhan police urge Dr. Li to stop spreading such misinformation. Later, Dr. Li contracted the Corona virus from one of his patients and died because of it. Later on, Chinese health officials reported the ground facts of this Corona virus, its symptoms, and precautions. It is vital to note that Wuhan is a Chinese mid-city, and the Corona virus begins with China’s spring festival. During this event, all Chinese people return to their hometown to see their parents, friends, and relatives and to celebrate the spring festival with their loved ones by eating and dancing.

This is the busiest times travel season in China. Prior to the Chinese government’s formal statement, millions of individuals passed through Wuhan and became infected with the Corona virus. This is one of the main reasons the Corona virus spread so swiftly, with millions of people infected within a day. This rapid spread aroused grave consciousness at the national and global levels, and within weeks, it was recognized as an epidemic by the World Health Organization (WHO, 2021) in Wuhan, and rapidly dispersing in 200 countries worldwide. According to World master info at present on 10 June 2021, total numbers of Corona cases is175,232,818, out of these 3,778,635 death cases and recovered case are 158,762,858.

Globalization has resulted in incorporating all countries around the world. If something happens in one region of the world, it will have a medium or high impact on the economies of the rest of the world. The world’s major economies, particularly China, have a significant impact on the rest of the world’s economies. China has the world’s second largest economy. It is valued at $13.6 trillion. China contributes approximately 16% of the global GDP. It is the world’s largest exporter. Most of the world’s largest corporations rely on China for backward and forward connectivity. Because of the Epidemic Corona virus in China, most factories have shuttered, affecting the global economy.

According to (Bentolila, Morana, and Bagliano) several literatures have been found on the causes of world economy recession because of corona virus in huge amount [1,2]. However, the world recession 2020, which is called a recession due to (COVID-19) is new in the modern history. According to (Radelet and Sachs) the 1997 Asian debt crisis was caused by a decline in the Thai baht, which created fear and prompted an economic slump and financial crisis in Asia.

Furthermore, in 2008 financial crisis was caused by a fragile monetary policy, a free regulatory system, and significant leverage in the banking sector, according to (Allen, and Carletti) [3]. In Nigeria, the recession in 2016 was caused by a balance-of-payments imbalance, and crude oil prices fell to their nadir. However, in this exploratory study, we will analyze how the Corona virus affects various economies around the world.

A number of confirmed cases of corona virus out of which death cases, and recovered cases on all over the world on the can be checked from the (World meter) [4].

Following table shows the number of confirmed cases, death cases and recovered cases of the few countries in Tables 1-4.

Impact of Corona Virus on World Economy

Initially, it was predicted that the corona virus (COVID-19) pandemic would be limited to China. However, because of the movement of people, the corona virus has spread worldwide, with over 200 countries being affected by it [5]. As a preventive move, the World Health Organization has declared that the Corona virus is spreading over the world and is easily transmitted from person to person. Everyone should keep their distance from one another. They also stated that staying at home was vital to avoid the corona virus.Every country on the globe took precautionary measures to protect themselves from the Corona virus, which has caused the entire world to be shut down. Instead of some fundamental good generating factories, the entire world’s industries lock down. According to(Elliott, Horowitz) [6,7]. All countries are detached from one another, which has a negative impact on the aviation business. Along with the cancellation of major sporting events such as the PSL (Pakistan Super League), the sports sector suffers.

According to COVID-19, the 2020 crisis will be not only devastating, but will also have a spillover effect on the global economy due to supply and demand shocks in every area of businesses (El-Erian,) [8].According to the US Federal Reserve’s monetary policy report, the size of the Chinese economy will have a significant impact on the global economy and the US. China’s total GDP contribution to the global economy is 13.6 percent, the second biggest after the US economy, which contributes 16.8 percent. Some economists predict that the world’s developed economies’ GDP would increase less in 2022-2021 than it did in 2019. It is up to the government to decide how to deal with COVID-19. According to John Detrixhe, the world’s GDP prediction table is shown below.

According to above table it has been shown that world’s GDP is falling down from 2.9 in 2019 to 2.5 in 2020- 2021. Which shows that decrease in the world GDP with negative 0.5. International monetary fund (IMF) managing director (Tao Zhang) said currently world economy in front of three biggest challenges, which contain tension on trade front, financial and fiscal risk, how to achieve inclusive growth. He believed global economy sun is still shining. But world largest economy US and China have trade war, diverse models try to access both economy impact on probable trade war, and to mitigate the possible effective measures. But condition truth is much complex than predicted model. Difference or disagreements at all essential points need to resolve with cooperative approach. If not, then trade tension would consequence in global economy losses. Zhang says about financial or fiscal risk, he elaborated that total world debt was recorded $164 trillion in 2016. But currently in 2021 crisis, it is superior to the level seen in 2008 crisis [9]. Countries must awake of their fiscal conditions and maintain economic growth. Some countries approach like fully employment, government expenditures will definitely reduce the risk to sustainability. Economies should focus on innovative ideas and there is a potential for financial technology and implement these ideas to bring efficiency gain.

The rapid increase the virus in China, shows that over 3000 death and over 80 thousand infected people of the world’s 2nd largest economy implicit to lockdown the domestic and international travel. Which result in declining the economy of China and ultimately affects the world economy? According to SandP rating agency, China shows that 20%of worldwide manufacturing output in 2018, which is now expected to decline approximately from 5% to

5.7% because of an outbreak of coronavirus. Government of China injected 1.2tn Yuan into a financial market by reducing the rate of interest to support the economy. Further, China also reduced the tariff by halves on US goods, and taxes also reduced by 5% instead of 10%, now it reduced more from 2.5% instead of 5%. Fed notice Asian economies will affect because of Corona virus spread [10]. According to head of European central bank (Lagarde, 2021) Virus intimidation is a novel risk to economic stance, replacing China- US trade war.

Impact on the Tourism Industry

The Corona virus is spread over 200 countries. The situation is panic in the entire world. Government of all countries restrict their people to unnecessary travel, domestic or internationally. Mostly countries suspended tourist visa, residential visa and work visa.

If we take an example of Kingdom of Saudi Arabia (KSA) which is Holy Country for all Muslim world.

Every year millions of people visit Makah (city of Saudi Arabia) to perform Hajj, which is one pillar of Islam. As per the government statistics of KSA, in 2019 before corona approximately 2.5 million Muslim around the world visit for Hajj prayer. But during corona KSA announced to stop Hajj application to prevent people from (COVID-19). Same as other countries wholly prohibited inbound and outbound travel. Government forced travel restriction impact on numbers of passenger decreases in the entire world.

With a reduction of number of passengers, some airlines stopped their operations, such as polish airline, Baltic airline. These travel restrictions will affect the tourism industry worldwide and approximately $200 billion losses foreseeable. Aviation industry losses cross the figure of 113$billion by IATA estimation. American Airlines Seeks $50 Billion Compensation.

According to World Travel and Tourism Council (WTTC) mention that because of corona virus pandemic situation over 50 million jobs cut down in travel industry. Tourism industry contributes 10% for Global GDP. After the epidemic of corona virus tourism industry needs 10 months for revival of tourism industry. Further WTTC said that Asia is mainly affected continent.

According to Virginia Messina (WTTC Managing Director) said policies are general and not verified to be effectual to hold the virus. She further said tourism restriction could also affect not only to medical supplies delivery but also on medical expert’s travel. Messina said every month over 850,000 citizens take a trip from Europe to USA. This is comparable to $3.4 billion monthly payment to US economy. She said out of 50 million employments lost, near about 30 million is from Asia, 7 million from Europe, 5 million from Americas and other territories.

WTTC recommends countries should make trouble-free policies regarding visa process, and trim down the taxes on traveling and start incentives later than the epidemic situation.

Impact of Corona Virus on Global Hospitality Industry

Hospitality industry affected because of corona virus epidemic situation. Various country's government announced the slogan "social distancing" and "Stay at home" lead to shut down the restaurant, parks, cafes, hotels, to prevent the spread of COVID-19. Hotels from all around the world witnessed booking termination value billions of dollars, and the hotel industry bailout $150bn. Executives of Restaurant and hotel industry lost their jobs and trying to find a new job.

According to Smith travel research (STR) weekly reports show that metrics are ongoing to catch worse because of pandemic COVID-19. This information based on 9.2 million rooms and 68000 properties around the globe. Reports show that in comparisons to last year 2019, tenancy is extremely down approx. 95% in Italy, 67% in UK, 68% in China, 59% down in USA, and in Singapore its down level is 48%. As we know China is an earliest market to deal with corona virus and luckily successfully defeat the Corona virus and now hospitality industry in China is forwarding to stabilization. Now 87%hotels are opened in whole China, which was only 40% in past 2 months. Tenancy is turned to positively. In May it was 10%, at the end of June it increased up to 22% and beginning of July it proximately increases to 30%. But if we talk about the world, still there is worse condition in hospitality industry until they stop COVID-19. In USA still tenancy is 30%, which is not a good signal.

The Tenancy in US hotel industry did not fall down quickly as compared to other countries like China, Italy; the reason is US government did not announce lock down policy. Still people traveling in USA, and not practice the social and physical distancing. That's the reason corona virus infection rate is much high in USA as compared to other countries.

According to Revenue per available room (Rev.PAR) performance measure in hospitality industry, shows statistics that now the hospitality industry falls down more than compared to financial crisis of 2008, and terror attack on 11 September. In China Rev.PAR, declines up to 85%, while in Europe it drops 69.5%, and in US it drops up to 44%.

According to STR, Rev.PAR breaks the record of declining of last 30 years. Cumulative data of top 25 markets in USA shows major declining, aggregate occupancy down over 66% to 26%.and Rev.PAR down from 80% to 27%. STR declared about the collapsed of occupancy in his report. According to Jasper Palmqvist STR area director predict the recovery phase hoping it almost takes 6 months for v shaped recovery which also seen in SARS crisis.

Impact of Corona Virus on the Global Sports Industry

The impact of corona virus on sports industry is very high. According to sports global value analysis, currently sports market contributes annually US$756bn, which includes US$420bn by USA and remaining by Europe accounted US$250bn. Below this China is the most growing sports industry which makes US4 150billion annually. If we see all major sports events in the world from athletes, leagues, teams, media and broadcast stopped or delayed because of pandemic COVID-19.

Football leagues in Scotland and England announced to instantaneous postponement of football matches. In USA National Basketball Association (NBA) paused their season and Revenue lost amount is 350 million to 450 million US dollar. The world’s biggest sports event is Olympic Games, which is planned in Japan Tokyo at the end of July 2021, but because of corona virus International Olympic Committee (IOC) delayed this event till 2021. Now it starts from 23 July to 8th of august in 2021. Japan suffers a loss approx. 597 billion yen which it already invested to host this sports event.

Marathon’s race was listed to get put on 26th April also postponed until October. World Athletics championship planned to organize on August 2021. But now it is delayed in July 2022, to avoid contradictory with the diary of Olympic Games. Formula one also stopped their events because of corona virus. In Portugal government stated emergency in the countryside and Motorsport’s game occasion and other events postponed.

World snooker championship also postponed. A cricket league in Pakistan PSL (Pakistan Super league) postponed because of corona virus. In golf sector, LPGA rescheduled its event and resulting billions of dollars Revenue loss. According to (SimonDenyer), chief executive of television and internet sports streaming said, in 75 years it is a biggest disaster in sports industry.

Impact of Corona Virus on Global Education Industry

According to United Nations Educational, Scientific and Cultural Organization (UNESCO), around 290 million students or learned affected because of corona virus COVID-19. Mostly countries have temporarily closed their educational institutions to control the Corona virus from spread. It damages the education industry to $600 billion. According to UNESCO observation, 188 countries have nationwide or complete closure their educational sectors. And 5 other countries closure educational institutions on local basis. Total impact is 99.4 percent of the world student’s population.

Cambridge international Examinations have canceled all their examinations for all levels worldwide. Corona virus had severe impact on those schools wherever the lack of online education platform. A credit rating agency (Moody's) downgrades the USA education system which is an outburst from stable to downbeat. The reason is that over 30% universities and colleges in US have low operating performance. So it is difficult for these institutions to adapt academic and financial changes which are necessary to manage with corona virus. Italy and Spain Nigeria, France, Israel, and Egypt closure all their schools, while Australia closures some of their schools. This worse condition in educational sectors creates unemployment for most of the teachers.Government of Netherland also temporary suspended all examinations for students. The positivity of this condition is it increases the value of online education and distance learning, but a tiny proportion of institution to provide online educations. In USA only 15% undergraduates who studied online classes and get degrees in 2019. Other countries like Canada, UK bear billions of dollars lost in education Revenue because foreign students suspend their studies and went back home. According to Deloitte report, because of cancellation of Federation of English language teaching organization (FELTOM) monthly financial loss is near about Euro 1.4 million, whereas Malta’s economy cost is Euro 3.4 million per month.

Impact of Corona Virus in Health Industry

As other sectors, hospital sectors are on the front line to fight with corona virus pandemic. Hospital industry faces supply chain dispute and knocks to its revenue from the termination of elective surgeries. Mostly countries have increased the services with higher level of demand but if we talk about testing, equipment which are in greater numbers in private hospitals.

China has closed all its hospitals in Wuhan, while in Iran hospital are doing more struggles to fight with this corona virus. In Spain government nationalized all private hospitals and healthcare centers to fight with spreading of corona virus. Singapore has sufficient equipment and health facilities to control corona virus. Further Ministry of health (MOH) in Singapore advised to all doctors in private and public sectors not to accept any foreigner patient.

Pharmaceutical industry suffers billions of dollar losses because supply chain affected of medicine companies. Major drug making companies import ingredient from Chinese companies. Approx. before the Corona outbreak, China produces the 60% ingredients of world pharmaceutical industry. After the outbreak of Corona virus, all pharmaceutical ingredients stopped because of multiple reasons. First, China had shut down its factories which make drugs. And second, there is a big supply chain problem; thirdly various countries canceled their contract to import these ingredients from China. The excessive dependence or trust onChinese manufacturer raises the considerable risk to the worldwide pharmaceutical industry, and outbreak of COVID-19 proved it. The rating agency Sand P shows that health industry fell down up to 7% at the start of March 2020 which shows that health investor felt industry hit severely. Moody's rating agency shows that cash flow is very low as compared to 2019.further he said nonprofit and public sectors of healthcare go downgraded from stable to negative cause of the Corona virus COVID-19.

Policy Responses to COVID-19

Different countries implemented different policies regarding monetary and fiscal policy, human Control policies, and health policies to sustain the economy of their countries. Over 200 countries affected with COVID-19. Human control policies which are implemented by all affected countries include shutdown the airbase, sea border and land border. Some countries temporarily release the prisoner from overcrowded prison. Some countries nationwide closed all universities, colleges and schools to break the chain of virus.Some countries impose "Curfew" in the whole country with slogan to stay at home. Countries suspended all tourist visas, residential visa for temporary time. Some countries ban to travel inside or outside the country. Public health policies include public quarantine, border quarantine, stay at home, social distancing. It is not possible to explain the Monetary and Fiscal Policy responses of all countries around the globe. Research randomly selects some developed and some developing countries, and explains their Policies against COVID-19 situation. Below Table 4 shows the monetary and fiscal policies of some randomly selected companies.

Issues in Policy Responses

The world affected the corona virus pandemic took some policy measure regarding monetary policy, fiscal policy, human control policy and healthcare policies. There are some issues regarding these measures due to which these measures cannot stop the recession. First, if we talk about the monetary policy in which central bank, International monetary fund reduces the rate of interest, to increase the supply of money in market. But on the other side demand for money is not high, people are staying at home, all business shut down. Business executive not interested to take a loan even at low interest rate.

There is a slogan stay at home and social distancing stopped people to go outside and buy anything. If no customer or consumer then there is no business, if no business then no need of capital to invest. Now situation is, banks are ready to give loan, but cannot find an investor to take this loan at low interest rate. So, this monetary policy step is not beneficial for global economy.

Discussion

Mostly economist said that monetary policy is not a vaccine to stop recession. Various countries took different monetary policies to increase the economic activities. But to save people’s life government also imposed stay at home and social distancing. Which result a fear in the mind of people, and all economic agents are powerless to interact with each other regarding economic activities.

COVID-19 is now a big political issue in most of the countries regarding fiscal policy. It is difficult for government to take some fiscal measures, like which sector are more deserving for packages and which sectors are less important. Currently, it is a big debatable issue in developed and underdeveloped economies like USA and UK. Now every sector of the industry trying to get more packages from government to keep sustain from this COVID-19.

Some big businesses argue that government is giving more packages to banking industry, education industry, health industry, manufacturing industry as compared to entertainment industry, hospitality industry. They protested against government and saying why government did not consider other sectors like entertainment and hospitality industry significant contributor to the economy.

Conclusion

Entire world is suffering COVID-19 and the policy maker in central bank and other biggest institution who introduce new policies to ease the global economy are at high pressure. Previous crisis in 2008 is just a challenge to fight with financial crisis. But currently COVID-19 crisis is dual nature. First to save the people, second is to save the economy. Each measure is difficult to achieve because if we choose to save the people means took measure like to stay at home, social distancing, shut down the country to protect our people from death, it is ultimately we cannot save the economy globally.

Because all businesses shut down, from lower wages worker to executives suffer from this shut down and economy falls down quickly. But on the other side if we save economy then government needs to ignore the precautionary measure from COVID-19, everything is going as usual. No shutdown in the countries. No social distancing and stay at home. With this second step maybe, our economy will go up but we cannot save the lives of people, it is expected millions of people died if they infected with this corona virus. If we see in the long term, millions of people to death will also directly affect the fall of economy.

But if we save our people, it is chance we can boost our economy near future. There is a big challenge for policy maker to take such measure which not only save the people but also save the economy. This is a time to work together. All policies failed if there are no health precautionary measures. Doctors, economist, policy maker should sit together and implement those measures which have dual effect like it not only save people but also save economy.

References

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