Covid-19 Impact On Macro Economy in the Long Run

The COVID-19 has spread around most parts of the world at an unprecedented rate, infected millions and restricted almost every activity of the economy as the government has placed stringent travel and other restrictions on the movement of people and goods. As the number of infected cases rises, the economic damage is unparalleled and represents the highest shock that the world economy has ever faced. Governments have already taken various measures to cushion the effect of the pandemic and still the world economy is hit by the deepest recession and even the future outcomes are uncertain.

The macro economic perspective of the Crisis

Cases around the world are growing exponentially showing no sign of declining, this is causing a global tension worldwide and the authorities are putting forth some extraordinary efforts on every prospect to minimize the global damage by fiscal and monetary support. According to a study, the pandemic might result in contraction across varies emerging sectors of the developing economies and even the labor productivity and the marginal output can get affected by this global crisis. This recession is anticipated to have long lasting effects like reduction in the investment, world trade fragmentation which is a result of eroded income and other human capital due to increase in unemployment rate during the time of the crisis.

“UN forecasts pandemic to shrink world economy by 3.2%, the sharpest contraction since the Great Depression in the 1930s. IMF forecasts that the global economy will rebound in 2021 with 5.8 per cent growth though it said prospects next year are clouded by uncertainty.” - The Hindu (Chennai)

Source: KNOEMA

Single-Hit refers to first outbreak in 2020, where GDP has witnessed a drastic fall in the growth rate. World GDP growth rate observed a fall of 6%, whereas, United Kingdom 11.5% followed by France, Italy and Spain respectively.

Double-Hit means the occurrence of second outbreak by the end of 2020, where GDP is anticipated to fall by 7.6%, whereas, Spain is expected to observe adverse decline in the GDP by 14.4% followed by France, Italy and United Kingdom respectively.

Source: KNOEMA

Pandemic is expected to shrink down the per capita income of every individual driving the world economy into recession. This will have a spillover effect over the outlook for most of the emerging sectors and countries as they deal with virus in their domestic boundaries. While the world economy is expected to shrink, the slowdown will have the tendency to alter the advancement the country made towards development and drag thousands of people back to poverty. Demand for raw materials, infrastructural equipments, vehicular components has collapsed.

However, forecasters believe that the damage caused by the pandemic and its spillover effects are expected to ease down by the end of the year, but this approach might not be sufficient. Global lockdown and prolonged disturbance in economic activities may lead to even deeper recession. Businesses might find it extremely difficult to escape from the debt; rising borrowing cost and bankruptcies could result in financial crisis over the macroeconomic view.

How will the economy recover?

The intensity by which the crisis has spilled all over the globe may provide an evidence of how big and long lasting the recession will be. The crisis demands for immediate action to cushion its effects to protect the world's health and economic consequences. Government has to set up a stage in such a way that it is possible to protect the vulnerable population on one hand and obtain a balance for a long lasting recovery on the other. Developing economies are confronted with forbidding vulnerability rates, so it becomes even more important and difficult for the government to strengthen the health care facilities of those regions and address to many challenges posed by public behavior and obtain a balance while implementing its policies that will provide a framework for stronger growth ones the crises obtain a moderate level.