How Covid-19 impacted the world economy; A 2021 View Point
What’s the Deal?
As we know, the coronavirus pandemic has severely impacted people and economies around the world. The impact has been devastating and is still being felt by a number of countries, with permanent changes in how economies function.
Let’s take a detailed look at some of the major changes world economies have gone through since the start of the pandemic.
Impact of Covid-19 on the world
- Role of the government
- The government had to take extra control. Governments had to track where people went and who they met (to control the transmission of the virus).
- Central banks had to start printing money which enabled interest rates to hit record new lows.
- With industries being hit due to lockdowns, governments started providing credit to companies. As a result, corporate debt across developed economies saw a significant rise.
- Governments had to pay salaries and wages to people for survival when employers couldn’t manage to do it. Due to such interventions, government budget deficits added up to $11 trillion in 2020.
- Income Inequality
Low paying face to face jobs seemed to disappear when the lockdown started. Nonetheless, financial markets where the assets are owned by the rich surged much quicker than the job market. The pandemic has managed to widen the income/wealth gap between people.
- Increase in Crime Rate
Developing countries faced a severe downfall in the economy, experiencing high inflation. Due to this, crime rates increased and the lower class struggled to survive.
- Decreased Competition
In comparison to the previous three years, advanced economies have seen a decline in competition. The excessive use of online platforms during the pandemic has spiked a significant growth of e-commerce websites which had an impact on small businesses.
- Working Remotely
As we know, most of the white-collar employees have been working from home. Some of the large multinational companies have also given employees the option to work remotely on a permanent basis. It is a worry for traditional businesses, however, a boon for online businesses such as video conferencing platforms.
- Fall in Tourism
Global tourism fell by 72% in the year through October. With a drop in vacations, business events and other activities the tourism industry has plummeted. According to a report by Mckinsey, a quarter of business trips could disappear forever as meetings move online.
- Changing Globalization
When the pandemic broke loose in China, a number of factories had to shut down. This sent shockwaves through supply chains around the world (due to high dependence on China) leading to companies looking at localization and other countries to source from.
- Rise of Automation
The pandemic triggered the concern of physical contact in various industries such as retail and hospitality. This led to higher adoption of automated techniques such as machines to check-in guests, collection of toll fees etc.
Economic shocks like this one only arrive once every few generations and bring about permanent changes, shaping global growth for years to come. With vaccines slowly obtaining approval around the globe, the world might finally be on its road to recovery.