On March 10, 2021, the US Congressional Research Service for Information to Congressmen published the more than 100-page report “The Global Economic Impact of Covid-19.” The report is accompanied by background materials on measures announced and implemented in the largest economies and countries of the world in response to Covid-19. The material is grouped by country in chronological order and is a handy guide when considering a problem. Next, briefly about the content of this report.
On March 11, 2020, an outbreak in the world of a new viral disease, defined as Covid-19, was officially recognized as a “pandemic.” The viral infection has spread rapidly between countries and has affected almost all communities in the world on all continents, demonstrating the interconnected and interdependent nature of the global economy. By the beginning of March 2020, the focus of infection had moved from China to Europe, especially affecting Italy. But by April, the focus had shifted to the United States.
At the first stage, economic measures to counter the consequences of the pandemic were associated with a monetary policy aimed at stabilizing financial markets and ensuring the flow of loans necessary to support the economy.
At the second stage, the actions affected budgetary measures aimed at supporting economic growth.
In the third phase, government policy shifted to the development, procurement, and distribution of vaccines. This stage continues at the present time. What will happen next?
As of early 2021, the infection has affected more than 115 million people worldwide. More than 2.5 million people have died from the disease.
At one point, more than 80 countries closed their borders to travelers from other countries and regions affected by the disease. School closures, for example, have affected approximately 1.5 billion schoolchildren worldwide.
The World Health Organization (WHO) has determined that 230 million Europeans, almost half of the population of the EU countries, lived in conditions of restriction and isolation. However, in 2020, 26 million Europeans contracted the coronavirus, and more than 580,000 of them died from the disease.
The pandemic has negatively impacted global economic growth. A one-time economic fall surpasses anything that has happened in the world over the past almost century. According to available estimates, due to the coronavirus, the year-on-year global economic growth decreased from minus 4.5% to minus 6.0% in 2020, with a projected partial recovery in 2021 from + 2.5% to + 5.2%.
With current dynamics, the major advanced economies, which account for about 60% of global economic activity, are projected to operate below their potential output levels until at least 2024.
Following a synchronous global economic downturn in the first half of 2020, the global economy showed signs of recovery in the third quarter of that year. The US and European economies began recovery in the third quarter of 2020 with the US economy growing 33.4%, or 5.0% year on year. In the euro area, quarterly growth was 12.5%. On November 25, 2020, the Japanese government announced that the country’s GDP grew by 4.7% in the third quarter.
On November 24, 2020, the US Dow Jones Index returned after a previous fall and slow recovery and exceeded the previous maximum value recorded on February 14, 2020.
However, a new wave of coronavirus since September 2020 in Europe and the United States has prompted calls for renewed restrictions. This threatens to weaken or delay a sustainable economic recovery for at least the first or second quarters of 2021.
According to some estimates, between 100 million and 110 million people worldwide may be living below the poverty line. In addition, according to some estimates, global trade contracted by 9.0% or slightly less in 2020. The economic impact of the pandemic is affecting employment with high unemployment rates not seen since the Great Depression of the 1930s, as well as high levels of debt that continue to rise. Job losses due to the coronavirus response were greatest in the service sector.
The International Labor Organization (ILO) estimates that 93% of the world’s workers have worked in some form of workplace restriction. Because of this, 8.8% of work time was lost as a result of the global pandemic in 2020.
The total number of lost work hours in 2020 due to coronavirus compared to 2019 was the highest in Europe (14.6%) and the Americas (13.7%), i.e. where it was applied consistently and aggressively quarantine and isolation.
The ILO also estimated that global job losses amounted to 114 million jobs in 2020 compared to 2019. The share of lost hours of work due to higher unemployment was highest in Europe (6.0%), America (2.7%) including the United States, and the Arab states (1.7%).
The growth in global economic activity in the part of the fourth quarter of 2020 was equal to an increase in the labor market by 130 million full-time jobs. On a seasonally adjusted basis, the number of insured unemployed people in the United States as of February 20, 2021, was only 4.3 million, six times less than the peak of US unemployment of 25 million in mid-May 2020.
A number of economists and others has estimated that labor market disruptions in developed and developing countries associated with the pandemic could have long-term consequences.
The IMF concluded that:
1) per capita income will remain below the “pre-pandemic level” for several years, which will negatively affect current productivity;
2) the demands placed on national health systems to deal with the pandemic will impede the treatment of other diseases;
3) bankruptcy of enterprises can reduce productivity;
4) rising debt levels can discourage potential borrowing and investment.
According to the IMF forecast, the loss of global economic production in the period from 2020 to 2025 as a result of the pandemic will amount to $ 28 trillion. In the tourism industry alone, 120 million jobs will be lost forever.
The IMF predicts that up to 40% of bank assets may be at risk from bankruptcies in the coming years.
Establishing a permanent remote work presence can account for 20% to 25% of workers in developed countries and up to 20% in developing countries, which can reduce the demand for public transport, restaurants, and retail stores.
The rise in e-commerce has the potential to disrupt travel and leisure jobs, cut low-wage jobs in convenience stores and restaurants, but increase jobs in online shopping and service distribution centers.
The impact on the labor market of the imposed restrictions stimulates the replacement of workers with robotics.
Findings. The rapidly evolving nature of the Covid-19 crisis poses a number of challenges that make it difficult to estimate the full cost of losses. Here is a non-exhaustive list of questions related to these issues:
– How long will the Covid-19 crisis last?
– How many jobs will be affected by time constraints or permanently closed?
– How many countries will be re-infected with the new varieties of the virus, and how much will this decrease economic activity and slow down the recovery?
– When will the negative economic effect from the coronavirus reach its lowest point?
– How much economic activity will be further lost as a result of new outbreaks of the viral disease?
– What is the most effective monetary and fiscal policy for solving the crisis at the national and global levels?
– What temporary and permanent consequences will the crisis have on business?
– How can the workforce be organized in the best way under constraints?
– What is the balance of trade-offs between the requirements and needs of public health and the economy for the policy of containing the spread of the virus and preserving the economy?