COVID-19: Global Economic Impact

With confirmed cases of COVID-19 now numbering well above 330,000, precautionary measures aimed at slowing the pandemic’s spread are becoming more prevalent. Close conversation, traveling, and hanging out in crowds can elevate one’s chance of becoming infected with the SARS-CoV-2 virus, which spreads through the droplets produced when you sneeze or cough. As a result, tourist attractions, cultural institutions, public transportation, and public gatherings are among the riskiest places to be as the virus spreads.

As the COVID-19 pandemic has spread around the globe, it has had far-reaching consequences, economically, socially, and financially.

In this article, we take a close look at the global impact of the COVID-19 pandemic, particularly on the economy.

COVID-19: Impact on the Economy

The global economic impact of the COVID-19 pandemic will depend on how quickly the virus is contained, the steps that authorities take to contain it, and how much economic support governments are willing to provide during the pandemic’s immediate impact and aftermath.

Early indications of the pandemic’s impact on the Chinese economy are worse than originally forecast. For instance, In February, China’s services and manufacturing sectors plunged to a record low – China’s exports fell by 17.2% while automobile sales sank a record of 80%. As COVID-19 continues to spread, China’s economic recovery will be tested as demand from other countries drop as they cope with the virus.

Furthermore, although the COVID-19 outbreak seems to have slowed down in China, the pandemic and its impacts have gone global. Infections are continuing to rise in Europe, Iran, South Korea, the United States, and in other countries around the world, with authorities implementing more restrictive measures to contain the virus. Japan and Europe are probably already near recession status, given that they have a weak fourth quarter performance and high reliance on trade. While the U.S. entered the crisis with a tailwind, some experts are forecasting a U.S. GDP contraction in the second quarter.

However, estimates of the global impact of the coronavirus vary. For instance, early last week, the Organisation for Economic Co-operation and Development predicted that COVID-19 will lower global GDP growth from 2.9 to 2.4%. On the other hand, Bloomberg Economics warns that in a worst-case pandemic scenario, full-year GDP growth may fall to zero.

Most Vulnerable Economies and Sectors

The COVID-19 pandemic has generated both demand and supply shocks felt throughout the entire global economy. Among major economies outside of China, experts predict the largest downward growth revisions in countries that are greatly interconnected to China, particularly Japan, South Korea, and Australia.  

Furthermore, experts predict that major European economies will experience dislocations as the virus continues to spread and countries adopt more restrictive measures that can curb manufacturing activity at regional hubs. As a result of depressed activity, experts predict that foreign direct investment flows may fall between 5 and 15%, the lowest levels since the global financial crisis in 2008-2009.

At the sectoral level, tourism and travel-related industries will be among the hardest hit sectors as health officials and authorities encourage consumers to stay indoors and to maintain social distancing. The International Air Transport Association predicts that the COVID-19 pandemic could cost global air carriers between $63 billion – $113 billion in revenue in 2020. Aside from the tourism and travel-related industries, major hotel companies could experience significant losses as well.

The entertainment industry is going to be hit hard as well. Experts predict that the international film market may lose over $5 billion in lower box office sales. Entertainment giants like Disney expect a major blow to their revenues. Sporting events, restaurants, and other services will also experience significant disruption.

Industries that are less reliant on social interaction, such as agriculture, will be somewhat less vulnerable; however, they will still face challenges as demand wavers.

In the Philippines, trade, remittances, and tourism are the most affected by the COVID-19 pandemic. On the other hand, plunging global oil prices combined with weak consumption would greatly mitigate inflation. Moreover, prices of basic goods are now expected to rise by only 2.2% versus the 2.5% average in 2019.

Economic Slowdown and Financial Markets

The COVID-19 outbreak and its economic impact has already spread to the financial markets. In fact, most international indices are nearing bear market territory – declining at least 20% from the 52-weekhigh – as investors process lower corporate earnings due to the virus. For instance, the S&P 500 fell by 75 to open the March 9 session – this triggered a ‘circuit breaker’ that temporarily suspended trading for the first time since 1997. All in all, the index is down around 17%.

In the Philippines, experts reveal that the COVID-19 pandemic would have a longer and more disruptive impact on the economy – the Bangko Sentral ng Pilipinas (BSP) predicts slugghish growth for the rest of 2020. In a report sent to journalists, BSP says, “The implementation of the enhanced community quarantine in Luzon could further dampen domestic economic activity. The latest assessment assumes a U-shaped recovery with the impact of COVID-19 lasting until H2 (second half of) 2020 but with the economy expected to rebound by 2021.”

The Philippine Stock Exchange also shut down trading for 2 days as Luzon went under enhanced community quarantine. The enhanced community quarantine restricted the movement of people and shut down most establishments. When trading resumed, stocks crashed by about 24% – it is now at an 8-year low at the 4,000 level.

COVID-19: How It Impacts the Labor Market

Guy Ryder, International Labour Organization’s Director-General, states, “This is no longer only a global health crisis, it is also a major labour market and economic crisis that is having a huge impact on people.”

The International Labour Organization (ILO) warns that certain groups will be extremely affect by the labor market crisis, which could upsurge inequality. These include people in low-paid and less protect jobs, particularly young and elderly workers, as well as migrants and women. Migrants are vulnerable due to the lack of social rights and protection, and women tend to be over-represented in affected sectors and low-paid jobs.

Guy Ryder further states, “In times of crisis like the current one, we have two key tools that can help mitigate the damage and restore public confidence. Firstly, social dialogue, engaging with workers and employers and their representatives, is vital for building public trust and support for the measures that we need to overcome this crisis. Secondly, international labor standards provide a tried-and-trusted foundation for policy responses that focus on a recovery that is sustainable and equitable. Everything needs to be done to minimize the damage to people at this difficult time.”

In the Philippines, a labor group warns that 7,000 workers may lose jobs due to the COVID-19 pandemic. TUCP party-list Rep. Raymond Mendoza stated, “The PAL retrenchment program and the travel bans will trigger more layoffs in several of its supply chains that include hotels, restaurants, land transport service, logistics, catering and other suppliers of the airlines.”

The mandated community quarantines and implementation of social distancing may trigger more layoffs in different Philippine industries as well.

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