How COVID-19 has Affected Our Economy in 2020

Illustration+of+COVID-19%27s+impact+on+world+economy

Illustration of COVID-19’s impact on world economy

The first COVID-19 case broke out in China, December 2019. Three months after that, in March 2020, COVID-19 was officially identified by the World Health Organization (WHO) as a “pandemic”, a global health crisis that affects the whole world and a majority of its population. Since then, the world we live in has drastically changed. With a global promise of “social distancing” in place, social interactions between people have been banned;   travelling, as well as access to public services such as education, has been restricted. Has the COVID-19 pandemic also affected our economy? Yes — in fact, completely. 

Since the beginning of 2020 the pandemic has worsened every day with an exponentially increasing number of cases, leading many countries  into lockdowns. Curfews were implemented, social gatherings were banned, tourism was stopped, and many shops were closed. One especially interesting change was observed: consumer’s consumption patterns have changed. In many parts of the world where lockdowns were implemented, consumers started to “bulk-buy”, meaning they started stock-piling groceries. In supermarkets, essentials such as pasta, rice, and flour were out of stock because everyone started piling these at their homes due to their psychological instinct to survive. Hygiene-related products such as sanitizers, face-masks, latex gloves, and toilet papers were over-demanded to the extent that people were willing to pay premium prices for these scarce goods. Thus, the industries producing these essentials and hygiene-related products enjoyed a significant increase in revenue this year. 

However, the pandemic has done more bad than good. Not only on a nationwide level, but also on a worldwide level, the pandemic has resulted in a cease of economic activities. Spain, for example, announced a “nationwide lockdown” for its people in March 2020, when its number of new cases were exceeding 50,000 per day. The lockdown obliged people to stay at home unless they were going to the hospital or the grocery store. This had a devastating effect on its economy. Not enough money was flowing around as consumer spending decreased and business’ investment decreased due to lower confidence. In fact, Spain’s gross domestic product (GDP), fell by 18.5% from April to June. This immense drop in national income level was because of the fact that Spain’s economy is heavily dependent on its tourism industry. With tourism banned by lockdown, its economic growth is still staggering compared to previous years. 

However, this is not only the case for Spain — the International Monetary Fund (IMF) predicts that the global economy will shrink by a shocking 3% this year. Considering that this has been the worst economic downturn since the Great Depression in the 1930s, it is becoming a global concern. Towards the end of the year, the economy is “climbing out” out of the deep shrink in the Spring, but there’s still a long way to go to fully recover. Unless the COVID-19 pandemic is fully combatted, global economic growth will continue to stagger and eventually lead our economy into recession. 

In such a year with worldwide shrinking economies, unemployment has also been a global problem since the COVID-19 outbreak. With severely reduced levels of economic activity, many firms found it difficult to pay wages and salaries to their workers, therefore, leaving many workers fired or unhired. The real problem is that the decline in the unemployment rate this year hasn’t been an issue for one country, but an ongoing problem worldwide. In the second quarter of 2020, the International labour organization stated that 400 million full-time jobs were lost globally, and that the income earned by workers fell by 10% this year. With low rates of unemployment and income, consumers’ confidence and business confidence has greatly declined. Unless the COVID-19 situation gets better and all businesses are able to actively engage in economic activities again, the unemployment rate is highly unlikely to improve. 

Meanwhile, there were firms that were positively affected as a result of the pandemic. Amazon, the world’s leading E-commerce company, gained a tripled profit in the third quarter of 2020. The profit in the third quarter of 2020 was $6.3bn, as compared to the $2.1bn profit in 2019. As the pandemic has forced everyone to stay at home, offline shopping became unavailable to the general public, making people turn to online shopping. This led to a huge increase in profit for Amazon. Another corporation that saw a huge benefit was Netflix. During the lockdown, people were not able to go to the cinemas, therefore many started using Netflix as their form of entertainment. In fact, in April 2020 when the COVID-19 pandemic was at its peak, Netflix had a doubled number of subscribers than it previously had. With a higher number of subscribers, Netflix gained much more revenue in the COVID-19 pandemic seasons. 

Of course, the stock market was also affected. Global stock markets have suffered from the Dow and FTSE experiencing the greatest drop since 1987. The S&P 500, stock market index measuring the stock performance of the top 500 largest companies in the US, also sank by 20% in the first quarter of 2020. Retailers, tourist and energy industries have seen the greatest drop due to the many restrictions by the pandemic. 

In response to the severely declining amount of economic activity, many global central banks such as the Federal Reserve have attempted to cut interest rates to make borrowings cheaper and increase consumer consumption and firm investment to boost economic growth in the country. While this may lead to a rise in economic activity, countries must consider that consumer and business confidence is already low during the pandemic. Countries must continuously monitor the economic activities taking place and implement different measures to stabilize the economy during the pandemic.