Impact of COVID-19 Lockdown on the World Economy
Introduction
The infamous COVID-19 has affected every person’s life on earth in a very unexpected way, causing trouble to billions irrespective of their caste, privilege social and legal statuses, ability, wealth, sex and age.
The pandemic has raised a lot of health concerns across the globe. To eradicate the spread of the virus, a lot of countries and continents have laid down strict lockdown measures and precautions, business activities, closing schools and sometimes even preventing people from leaving their homes, except for essential reasons. Meanwhile, the economic activities have dwindled drastically. The factors such as lockdown and voluntary social distancing with regard to growing infections every day also contributed significantly to the economic fall.
In Fact, the global economy is bound to shrink by over 3% in 2020 as said by the International Monetary Funds (IMF). It is the worst situation faced by the world economy since the Great Depression that occurred in the 1930s. This can gradually cause a long-lasting global recession, with no country being able to dodge this situation regardless of their excellent mitigation strategies.
The disruption of the supply and demand chain in an interlinked world economy has led to a global shock. As the infections started to rise gradually, the supply and productivity went downscale due to reduced labor, and government intervention causing lockdowns, business closures, and social distancing, to name a few. On the other side, morbidity and unemployment started rising and worsened the economic prospects due to reduced intensive household consumptions and firms investments. This led to a big gap in the demand and supply cycle, causing ultimate uncertainty about the magnitude and duration of the impact generated by this pandemic. It is exponentially dampening business and consumer confidence and tightening financial conditions, which could lead to extensive job losses and investment.
History of Pandemics and Lockdowns
A pandemic can affect the economy in terms of decelerating the economic growth of affected countries, leading to a reduction in trade and an increase in poverty. For example, the 1918 influenza pandemic presented financial loss in the form of decreased education, increased disabilities, and lower socioeconomic status. Another significant impact of pandemics emerges in the form of workforce reduction. Absenteeism in schools and the workforce were considered as a direct economic impact of the Hong Kong flu in the 70s. Likewise, flu pandemics have led to a notable reduction of human and economic capital, as illustrated by the SARS pandemic, which had an estimated economic impact of $18 billion in East Asia.
The pandemics impact the food and agriculture industry greatly. Developed countries face disruptions in production and supply chains due to the needs of advanced and capital-intensive agricultural systems, disruptions in local and international mobility, delays in customs, and disruptions in credit markets.
The consequences of a pandemic are not only defined in terms of mortality but also by their impact on our daily livelihood and the economy, with globalization accelerating this loss and costing billions in expenditures. Pandemics affect the economy in terms of demand and supply. First, consumers and investors tend to lose confidence in marketplaces affected by the pandemic, depreciating the demand side of the market. Second, absenteeism and reduction in the workforce negate the supply side. Lastly, public health and international response to pandemics affect economics and development policies in trade, travel, and health response.
Current Situation
Lockdowns and Covid-19 Infections- Lockdowns engender sizable short-term economic costs, but they are also an investment in public health to protect susceptible populations from the highly transmissible virus. The analysis now examines the effectiveness of lockdowns in curbing infections. Growth rates of confirmed COVID-19 cases are regressed using local projections over the stringency of lockdowns while controlling for country and time fixed effects as well as other variables that can affect infections, such as outside temperature and humidity, public information campaigns, testing, and contact tracing. The pandemic is having disproportionate effects on the most economically vulnerable segments of the population.
Food and agriculture- The impact on food and agriculture was examined in terms of supply, agricultural contribution to GDP, food expenditures, agricultural imports, global food chains, business closures, food insecurity, supply disruptions, and response to COVID-19. Countries with higher GDP from agriculture, such as Bangladesh, have presented low exposure to supply but high exposure to the demand shocks. In addition, an initial slump in services and consumption at leading food chains contributed greatly to the disruptions in the food industry. This has been attributed to the many closures due to lockdowns. Although limited disruptions in supply have been reported, numerous franchises have been closed in European markets.
Impact on Mobility
1. Air Travel- Ten significant airlines covering over 50 countries presented large coverage in terms of passengers carried. Most airliner countries have responded to COVID-19 by implementing international travel bans from affected countries. On average, about a 30% reduction in stock prices has been observed among major airlines.
2. Sea Travel and Trade- The Carnival Corporation is one of the largest cruise line companies with over 100 vessels carrying about one million passengers monthly across its multiple cruise lines. The corporation responded to the COVID-19 pandemic by suspending cruises from March 13–April 9, 2020. This cruise line has observed over a 60% reduction in stock prices.
Economists state that the impact of COVID-19 on the economy has been very high. It is observed that the number of tourists arriving in China since the pandemic has decreased exponentially and therefore it has an effect on the tourism industry. It has been estimated that COVID-19 will hurt emerging market currencies and also impact oil prices. From the retail industry’s perspective, consumer savings seem to be high. This has an adverse effect on consumption rates, as all supply chains have been affected, which in turn has its impact on supply when compared with the demand of various necessary commodities.
For most people, mobility is one of the basic prerequisites for professional and social life. To achieve our life goals, we need to get around. Mobility also means freedom, but the measures the governments have taken are for reducing and containing the spread of COVID. So they have restricted the way people move within the country in an almost unprecedented way. Trains and buses are almost empty despite reducing their timetables. Some pedestrian areas are like ghost towns, but many more people are jogging and cycling in recreation areas.
The crisis has forced many companies to become more flexible on working hours and location. Since employees cannot take the risk to travel and be in a crowded gathering place, the high authorities have implemented the Work-From-Home strategy using electronic devices like computers and laptops.
Policy Measures Taken by Various Authorities
The UAE’s government has taken great initiatives and policy measures to tackle COVID-19. They laid down exceptional rules and regulations, and anyone who breached these rules was fined very heavily. Such as not wearing a mask in public places would draw a fine of 3000AED and any person who was in primary contact had to get tested and quarantined for 14 days mandatory. If such a person is seen around in a public place, they’d be charged with an enormous 50,000AED fine immediately. They shut down their borders and didn’t let foreigners travel here. The authorities implemented a containment strategy with postponing major events such as World Expo 2020 and imposed large testing. The government carried out The National Disinfection Program across the country and initiated safe Distancing rules. They even strengthened the Food Security Strategy and UAE’s Humanitarian Initiatives were taken. The hospitals were being implemented and managed well by the Dubai Health Authorities so that there won’t be any chaos and panic situations arising.
New Zealand, a modern small island nation, has become an emblematic champion of proper prevention and response to the COVID-19 pandemic. It began implementing its pandemic influenza plan in earnest in February, which included preparing hospitals for an influx of patients, and also began instituting border-control policies to delay the pandemic’s arrival. There were no reported cases until February 2nd, but the very next day, the country began banning entry to any foreigner coming from or via China. Any New Zealander returning from China had to be isolated for 14 days. Then a few days later, they closed all the borders entirely, to almost all non-citizens or residents.
New-Zealand locked down early (By mid-March), due to existing wildfire alerts and clearly indicated the current risk and necessary social distancing measures. A total nationwide lockdown was initiated, with only essential services running and everyone told to stay at home, in their “bubble”. The time bought by the lockdown was used to finesse an extensive testing and contact tracing operation. The GDP and economy of the country was hit by the crisis but only for the short term as it had caused inflation in the rates; which in-turn increased a gap between demand and supply chain. Nevertheless, New Zealand recovered quickly from it once the situation became better and everything went back to normal soon.
Whereas the United States Of America (USA) on the other hand has been very disjoint towards the pandemic. 40 million Californians were living with the state’s mandatory mask order imposed by the governor when the state’s decision to open up its economy led to a resurgence in COVID-19 infections. New York had come through the worst epidemic in the US after deploying strict public health measures and the infection was low enough that the governor announced the reopening of schools. The former President of the USA, Donald Trump had made the states reduce taking tests to lessening the panic amongst people.
Critical Evaluation of These Measures
The UAE government understood the consequences it would have to face if COVID-19 wouldn’t be controlled in the initial days and so they made the right decisions all along. They were very strict and adamant in this situation.. They took precise and sharp measures to prevent flooding of hospitals and arranged huge and large facilities to accommodate the people affected by the virus and provided the diagnosis. They did whatever they could to handle the situation; such as imposing lockdowns, disinfecting all the regions and making some compulsions like wearing masks and maintaining social distancing to break the cycle. As everyone knows, Dubai is very well known for Tourism and Transportation, but they had shut down their borders during the pandemic and it affected the economy adversely. The UAE’s economy has contracted due to the disrupted engines of growth from COVID-19 pandemic containment efforts, oil production cuts, reduced global oil demand and disruption in global supply chains. But the government continues to provide support in response to the pandemic as businesses strive to recover, worsening the consolidated fiscal deficit.
New Zealand took solid and uncompromising decisions even before COVID-19 could enter the borders of its country and as a result, they strived and had very few cases to deal with. They didn’t suffer the consequences like other countries that were hit adversely with the virus and so the economy wasn’t influenced much by the pandemic. They managed to keep their citizens safe by imposing lockdowns and letting people out only for essential items. The government prepared the hospitals for an influx of patients and laid down border-control policies.
On the other hand, the US was adversely being affected by the pandemic as there was no proper implementation of the lockdowns and the US government did not take any initiatives to keep their people safe. In fact, citizens of the USA were having protests for not wearing masks and there were many riots being carried out at that time due to other issues related to discrimination and wrongful deaths of the Black people. Donald Trump had made the states reduce taking the tests to lessen the panic among people but it just led to ignorance of the pandemic and wasn’t a good sign to avoid the virus. People would not be much aware of the situation and it just leads to worsening the situation of the country.
