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The COVID-19 pandemic had an unprecedented impact on the world, creating a global shock never seen before. The lockdown, disruptions, and closed borders negatively impacted an interconnected globalized economy. There were simultaneous disruptions to both supply and demand elements of the economic curve, sending the health of the overall market plummeting down. Most governments in the world underestimated both the public health and economic impacts of the pandemic, being largely responsive in any crisis response. The COVID-19 pandemic had a profoundly detrimental consequence on the state of micro- and macroeconomic activity which translated to decreasing national and global indicators of economic health.
On the supply side of the economy, the pandemic had multilateral effects. First, infections greatly reduced labor supply and the precautions necessary for people to continue working, affecting productivity. Most locations in the world imposed strict lockdowns, with both commercial businesses and production/manufacturing coming to a standstill. Supply disruptions were evident in a variety of industries, and those that continued working had to deal with social distancing and multiple barriers for even shipments in a globalized economy (Chudik et al., 2020). As a result of all these challenges, many companies had to cut costs in order to survive. Given that salaries are the largest expenditure in most industries, and the fact that most businesses could not operate properly, people were laid off massively. Unemployment in the U.S. jumped from 6.2 million to 20.5 million, or 13% unemployment in a matter of 3 months in the spring of 2020 (Kochhar, 2020).
All the above factors, particularly the layoffs began to impact the demand side of the economy as well. Loss of income for multiple reasons such as morbidity, quarantine lockdowns, or unemployment as well as grim economic prospects had reduced household consumption, despite the financial stimulus from the government (Chudik et al., 2020). With declining consumer purchases outside the essentials, businesses also began to spend less on supplies or aggregate products. This had a ripple effect on multiple levels of the economy. As enterprises face existential threats and people lose their sources of income, with many around the world lacking social protection, opportunities to earn a living or even the ability to feed families, both social and economic elements of stability begin to collapse.
One major indicator on the state of the economy is the stock market. Within the first months of the pandemic, stock market dropped rapidly, and major global shares were in flux. Big shifts in the stock market are dangerous as they reflect as well as affect both investor and consumer sentiment. The stock market also affects the value of companies, as well as influencing aspects such as pensions or savings accounts. Markets are one indicator that has since recovered to an extent as central banks and the Federal Reserve in the U.S. have cut interest rates, stimulating financial activity on the market. However, the global economy is expected to shrink by 3% and the U.S. economy will shrink by 4%, greater than the 2.5% drop during the Great Recession of 2009, signaling a global recession, thus less wealth and well-being for all classes of the population (Jones et al., 2020).
The pandemic undoubtedly had a significant detrimental effect on the health of the economy. It is important to consider how inherently intertwined both the global economy as well as multiple levels of a national economy are. With influences on both supply and demand aspects, there is a recession in progress affecting millions of people.
References
Chudik, A., Mohaddes, K., Pesaran, M. H., Raissi, M., & Rebucci, A. (2020). Economic consequences of Covid-19: A counterfactual multi-country analysis.
Jones, L., Palumbo, D., & Brown, D. (2020). Coronavirus: A visual guide to the economic impact. BBC.
Kochhar, R. (2020). Unemployment rose higher in three months of COVID-19 than it did in two years of the Great Recession.
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