During the recession, there is a big question mark over the effects of Covid-19 on the global economy. The United States has been a major exporter of oil and gas, so a large part of the United States economy comes from exports. If that sector falls, so does the share of the United States economy in world gross domestic product (GDP). As mentioned earlier, the United States is one of the largest importers of petroleum products in the world.
If this trend continues, the United States could be adversely affected by falling prices for oil and gas, which will result in a reduction in global economic activity. The European Union (EU) is the main country that supplies Europe with petroleum products, so if Europe were to lose its oil and gas supply, it will negatively impact the European economy, which itself is already in recession.
One of the negative effects of the current recession on the global economy is that the stock market. Since the beginning of the decade, China has consistently outperformed the stock market in all major markets including US stocks, European stocks, Japanese stocks, and Asian stocks.
Impact on Global Economy
According to the forecast, lock-downs in Europe and North America are hitting the service sector hard. The major impact will be on the industries that involve physical interactions such as retail trade, leisure, hospitality, recreation, and transportation services. Collectively, such industries account for more than a quarter of all jobs. The DESA said as businesses lose revenue, unemployment is likely to increase surely. It will result in transforming a supply-side injury to a wider demand-side crash for the economy. During the recession, there is a big question mark over the effects of Covid-19 on the global economy. The United States has been a major exporter of oil and gas, so a large part of United States economy comes from exports.
The economic damage caused by the COVID-19 pandemic is largely made by a fall in demand. It means that there are not consumers to purchase the goods and services available in the global economy. This can be seen in heavily affected industries such as travel and tourism. To slow the spread of the virus, countries placed restrictions on travel. This means that many people cannot purchase flights for holidays or business trips. This decrease in consumer demand affects airlines to lose planned revenue. It means that they need to cut their expenses by reducing the number of flights they operate. Without government assistance, ultimately, airlines will also need to reduce lay off staff to further cut costs.
How Does The Effect Of Covid-19 On Global Economy Differ From The Effects Of The Recession On The Global Economy?
Since the start of the global financial recession, more people have lost confidence in the stock markets and many investors have drawn out of the stock markets, many have even been forced to leave their jobs.
Another effect of the current recession on the global economy is the weakening of the dollar. The US is the largest single creditor in the world and since the beginning of the decade, the US has received more foreign currency than any other country. As a result, the dollar has become increasingly valuable against every other currency. Many international investors are now holding dollars instead of the traditional euro, Japanese or Australian dollar because the dollar has strengthened against all other currencies.
Also, a lot of world governments have continued to encourage the strengthening of the dollar due to the effects of the global recession on the global economy and the belief that the strength of the American economy would continue to strengthen the dollar.
Economic Slowdown Impact on Financial Market: Major effect of covid-19 on global economy.
The same disorder refers to other industries. With decreasing demand for oil and new cars, social events and holidays are no longer possible. As companies start cutting staff to gain up for their lost revenue. This will create a downward economic change when these newly unemployed workers can no longer afford to purchase simple goods and services. An increase in unemployment will increase the decline in sales that happened from the closing of shop fronts. It will also cascade the crisis over to the online retail segment (which has increased throughout the crisis).
The attention of a larger outbreak and its economic influence reached financial markets last month. Most international indices are nearing bear market territory (declining at least 20 percent from the 52-week high). As investors process the lower corporate earnings that will result from the virus. The S&P 500 fell 7 percent to open the March 9 session, triggering a “circuit breaker” that briefly suspended trading for the first time since 1997. Overall, the index is down about 17 percent from its record high on February 19.
Economies and Sectors which are vulnerable to COVID 19:
Among the equity route, investors have left to safe-haven assets such as U.S. Treasury bonds, leading to record low yields. Low yields turn into low borrowing costs for the U.S. government. But low-interest rates may not benefit private companies or individuals (or even all sovereigns). They may find financial markets too risk-averse to extend credit in light of such uncertainty. The longer the virus spreads, the more economic and company performance will be impacted. It will result in raising concerns about debt sustainability, especially for highly indebted countries and companies, absent official support.
Tourism and travel-related industries will be among the hardest hit. This is so because governments encourage “social distancing” and consumers stay indoors. The International Air Transport Association warns that COVID-19 could cost global air carriers between $63 billion and $113 billion in revenue in 2020. The international film market could lose over $5 billion in lower box office sales. Similarly, shares of major hotel companies have fallen in the last few weeks. Entertainment giants like Disney expect a significant blow to revenues. Restaurants, sporting events, and other services will also face significant disruption. Industries less reliant on high social interaction, such as agriculture, will be comparatively less exposed but will still face challenges as demand wavers.
Government’s response to cushion the economic fallout:
In China, the epicenter of the outbreak, officials declared billions in special-purpose loans to companies facing liquidity limitations. They also announced the financial support to specific sectors such as aviation. In the United States, the Federal Reserve cut the policy rate in an emergency action on March 3, and on March 9, in coordination with other U.S. bank regulators. It inspired financial institutions to “meet the financial needs of customers and members affected by the corona-virus”. This is a move pointed at supporting financial qualifications to prevent the growth injury from turning into a wider financial crisis. On March 9, the Federal Reserve Bank of New York also announced expanded overnight repurchase operations. .
In recent years China has become a key exporter of commodities. At the same time, the Chinese government has made efforts to reform its economy to allow more rural areas access to the world market.
The European Central Bank and Bank of England are expected to take action. They will take action when their monetary policy committees meet later this month. On the fiscal front, President Trump previewed his administration’s plans to seek a payroll tax cut. They provide support for impacted hourly workers and industries. Countries announcing fiscal measures just this month. It include Japan ($9.6 billion), South Korea ($9.2 billion, 0.56 percent of GDP), and Italy ($4.1 billion, 0.20 percent of GDP). The capacity of such spending will depend on the virus’s route. Also, it will depend on the effectiveness of other efforts to contain negative pullovers from the growth crash.
There is a major effect of covid-19 on the global economy. It affected many sectors. Now it’s hard for them to overcome such a situation. But every disaster also brings opportunity with it. It requires finding the right opportunity in the global economy to sustain the overall growth and development. It is very important for all government officials of all countries respectively.
Another main effect of the current recession on the global economy is the weakening of the US dollar combined with the appreciation of Chinese stocks. This is one of the main reasons why there has been a sudden increase in the buying of American stocks. So as you can see, although the economic recession is in effect on the global economy, there have been some positive effects on the American economy.
There is a requirement of fast and adequate action soon to tackle this global pandemic. Many important sectors are on the way to immense downfall which can majorly affect the global economy. Helping and finding the right opportunity for developing the overall stability of the global economy is important now. Only in this way, major effects of covid-19 on the global economy can be reduced.