While writing these words Covid-19 is widely spreading throughout the planet. This health crisis is plunging the world into the biggest economic recession of the 21st century. As 2019 came to an end, economics saw several threats to different sectors in specific countries- the US election, the trade war, the Brexit negotiations…- but nobody thought of a pandemic quickly escalating and causing losses to the entire globe. Our first thoughts and prayers are with all infected people, but as economists we have the responsibility to think about the economic impacts, and summarize how they are going to change expectations, policies, strategies, and behaviors. Stay home, stay safe! and read this article to widen your knowledge.
Covid19 has toppled the global economy creating enormous shocks to supply and demand. The world trade organization projects that trade will fall steeply in every region in the world and across all sectors of the economy. In an optimistic scenario they predict that the volumes of global trade will decrease by 13% and if the pandemic is not brought under control and governments fail to coordinate policy responses it could decline by 32% or more. Trade fell aggressively in sectors with complex value chains like electronics and automotive products. Services trade is directly affected by Covid-19 due to restrictions on transportations, travel as well as the closure of many retail and accommodation establishments.
However, Covid-19 has brought considerable attention to trade in medical protective equipment, and specifically trade in products for prevention, testing and treatment such as face masks, respirators and hand sanitizers. Some countries have stopped exporting these products, while others started it after achieving self-sufficiency.
Stock markets experience their worst period since the financial crisis, they knew a worrying volatility and reacted with a big drop, fear drove some traders to sell everything while others asked banks for support. The most important event of this week is an oil crisis mainly due to the fall of demand and aggravated by the price war between Saudi Arabia and Russia, demand is currently dropping and consequently fuel oil futures and options contracts knew a huge prices fall, for the first time in history United States has experienced a negative drop of oil that reached in west Texas Intermediate -37.67 dollar a barrel.
These days, the biggest challenge for investors is to limit losses and protect their investments’ value, they changed behaviors and strategies in order to adapt to current circumstances, so instead of selling an investment once its value starts dropping, it is wiser to let the market calm down before start trading. Analysts advise them to keep disciplined, focus on long term goals, not get affected and scared from short term market fluctuation and to diversify their portfolios through investing in different regions and sectors to minimize the risk. It is hard to invest in volatile times, but this situation requires it.
On 26 March 2020, United Nations Conference on Trade and Development’s estimates the pandemic to cause a dramatic 30% to 40% drop in FDI (Foreign direct Investment) much more than previous forecasts projecting -5% to -15%. To face Covid19 many countries are now taking out credits to finance unexpected expenses, the impact will be relatively concentrated in countries that are most severely hit by covid-19, especially for developing countries higher debt to GDP ratios increases the risk premium since default risks will be higher, rational investors will be more skeptical and will think twice before investing, which would worsen their financial health. National investment is currently frozen where Coronavirus is active, after lifting the containment measures economies will try to heal their injuries, for some it will take more time than others depending on policies’ nature that governments are putting in place to support their economies, and on the scale, duration and scope of the economic freeze. Let’s be optimistic maybe a remedy will be discovered soon, and this nightmare will be over!
This pandemic impacts negatively the quality of fiscal consolidation, gross financing needs and debt. The overall budget deficit will deteriorate in 2020, the worsening of this deficit is mostly due to social and economic sending’s increase, to the big fall in tax revenues, and to trade balance deterioration; in normal conditions the fall in oil prices would help, but with the confinement and social distancing that governments are imposing, oil consumption’s and production are simultaneously falling, so sending’s reduce isn’t enough to cope with the deficit.
This pandemic will also affect future budget settings, governments must review budgets of several sectors, especially those who marked huge shortage and real suffering during this period, mainly health sector, education sector, safety and municipalities’ to deal with any unforeseen in future and similarly improve the quality of services as well as their power. We should be always ready; pandemics don’t call to say they’re coming!
The social impact of Coronavirus has recorded sweeping consequences beyond the spread of the epidemic itself. Admittedly, covid19 is wrecking our economy but in social matters, the bill risks being equally important. Indeed, employers laid off lot of employees and reduced working hours for others, which is negatively impacting their income. Governments are trying to put in place policies to support them, for example Morocco instead of resigning itself to this situation has showed humanity, resilience and generosity by raising a fund of 23, 5 billion Dirhams of donations from the wealthiest to prevent the bankruptcy of several companies and save thousands of jobs and households.
Since the outbreak of this epidemic, our daily activities and social habits are changing, people all over the world have been avoiding shaking hands or hugging to help prevent exposure to the virus, this new normal life might be difficult for some communities. Furthermore, people’s fear from the virus positively impacted eating habits, they are now more concerned about cleanliness and hygiene which will oblige hotels and restaurants to raise their hygiene standards. Today, schools and universities all over the world are exploring distance learning, the same goes for companies who chose working from home, according to a report in New York Times, the e-commerce has registered an increase of 25% to 30%, today most people choose to order their needs through online apps, to stay home and protect their love ones.
We take this opportunity to express our salute to all soldiers who are exposing themselves on the front line to protect us; medical staff, police, street cleaning workers…
The word’s economy is bleeding, governments are doing their best to protect populations, it will take time to recover, but be sure it will! The most important lesson to learn is: Pandemics aren’t frequent but possible, if we time travel back to four months from now no one would take this article seriously, even you! You would think that I have a fabulous imagination, and so did governments. We didn’t manage to predict it, nor prevent it, NOW that the crisis is HERE, we’re managing it and it would change a lot of things in life as we know it; live the change!
Authors:
- LAHJEL Kenza
- LAARASSI Abderrahman
- LAATMANI Boutaina
- MAKADIR Sanaa
- NACHITH Yacine
References:
- OECD (2020) “Economic Outlook, Interim Report March 2020.”
- https://unctad.org/en/PublicationsLibrary/diaeinf2020d2_en.pdf
- https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm
- https://www.legalandgeneral.com/investments/investment-content/coronavirus-impact/
- https://www.istockphoto.com/fr/vectoriel/impact-du-coronavirus-sur-l%C3%A9conomie-gm1210280252-350551454
