What is the Impact of COVID-19 on Global Economy?
By Emmanuel Jurczenko, Director of Graduate Studies and Professor of Finance
The current coronavirus situation is profoundly impacting all types of businesses. With temporary cessation of some businesses and activities slowing down for many, the consequences of the pandemic are even worse for the global economy than the ones following the Great Financial Crisis in 2007-2008.
Fortunately, as China has been able to stop the spread of the virus, Chinese manufacturers have returned to full capacity. However, with the rest of the world going through a similar form of lockdown, the country's economy is undergoing a second hit with overseas market shutting down. Based on a paper from IMF economists, China will suffer from the cutback in global demand which accounts for 20 percent of the Chinese's economy.
According to Fan Gang, one of China's top economists, we can expect a progressive recovery for China. Indeed, based on a study from Cefuture, a Chinese logistics and transportation consulting firm, 41 percent of citizens aim to reduce their spending as a precautionary measure for future unexpected events whereas only 8 per cent plan on shopping more after the outbreak. Although this could be worrying for businesses, the recovery of China still brings hope and optimism to the rest of the world where the situation is rapidly evolving, especially in Europe and the United States.
In the United States for instance, with the quarantine measures continuously reducing economic activities, the economists of Morgan Stanley have predicted a drop of 30 per cent in consumption and a level of unemployment reaching approximately 12.8 per cent in the second quarter. Indeed, the impact of the pandemic cannot be taken lightly as it affects everyone. The travel industry is among the sectors suffering the hardest risks due to the travel restrictions implemented by governments worldwide.
With the uncertainty lying behind COVID-19, we can expect the global market to be quite volatile with no global growth this year. According to the Organisation for Economic Cooperation and Development (OECD), 2020 can see an estimated 2.4 per cent decline for the global economy before a growth of 3.3 per cent next year. Tom Rafferty, main economist for China at The Economist Intelligence Unit, suggests that, by next year, the global demand and supply should be back to normality. Indeed, to achieve this result, policymakers have been obliged to review policies in order to mitigate the severity of the impact, but the virus remains the last factor which will decide when each country can get back to its ordinariness. The pandemic will continue to disturb the global market therefore it is essential that we all work together to successfully get through this challenging time.