The COVID-19 pandemic and the accompanying lockdowns have put an unprecedented pause in our otherwise busy lives. This strange virus continues to pose unique challenges to people across the world. From the most powerful to the under-developed nations are grappling with the onslaught of patients from the virus. The world is slowly realizing the aftermath that it would leave and the impact that it would have on the economy.
To have a better understanding of the effects that COVID-19 would have on people and the countries, many experts are revisiting the past and studying how other pandemics unfolded. Let’s look back at history and assess the damage such disasters have struck:
What leads to unemployment during the pandemics or recession?
An estimate by the International Labour Organization (ILO) shows that the number of unemployed people would touch 25 million by the year-end with the American and European regions suffering the most. Historical data also shows us that the rate of unemployment surges at a time of crisis like this, but the question that arises is what leads to an increase in the unemployment rate?
When a disaster (man-made or natural) strikes, it hurts business due to the market conditions like fall in revenue, increase in costs, etc. An overall negative sentiment of the market leads to a shift in consumer mood and the unavailability of easy and small business loan credit leads to overall business challenges. The decline in business results in decreased demand for human resources, thus leading to job losses or layoffs. Since the phenomenon of business contraction becomes common across industries, it leads to higher job cuts, and many become unemployed. Here are some other factors besides job cuts that lead to higher unemployment rates:
- Additional time taken to find a suitable job
With an increasing number of job cuts across industries, it takes time for a person to find a relevant job matching his skill sets. This process of finding the right job for the right person is lengthy and challenging due to adverse market conditions. Thus, a higher unemployment rate persists until the time a person finds a suitable vocation.
- Market rigidities
In a scenario where jobs are less, the market conditions often become tricky where both the business owner and the worker have to tread carefully. To sustain, businesses reduce cost by laying off the workforce and not by lowering the salary as this might hurt the morale of those employed who might start exploring opportunities elsewhere.
- Government policies
The time is taken by various governments to respond to the crisis, and formulate policies in a timely manner also contributes to unusually higher unemployment rates. The importance of comprehensive and time-bound government support has proven to be critical in helping countries, people, and economies recover from such challenges.
The COVID-19 pandemic and its impact on global economies across the world
Most countries are adopting quarantine, total shutdowns, or shelter in place measures to contain the coronavirus from spreading. However, this approach has left many jobless and millions are struggling to make ends meet. The total number of unemployment claims has touched a record high of 26.4 million alone in the USA.
With the International Monetary Fund (IMF) revising its projected GDP growth rates from earlier 3.3% to a contraction of 3% further represents the tough times that are about to befall on the world. The world has not witnessed this trend since the Great Depression in the 1930s. Going by the trends, the repercussions would be severe for all the countries globally. One hundred seventy countries are expected to report a lower GDP per capita income by the end of 2020 as per the IMF estimates. Let’s have a look at how the various regions would be impacted due to COVID19:
- Impact on the African countries
International financial institutions like the IMF have predicted that the emerging economies and low-income countries will face challenges to overcome the loss caused due to the pandemic. According to a report by the African Union, the effects of COVID-19 on the African countries would be disastrous. The situation could worsen owing to the fall of the oil process globally, with Nigeria alone accounting for a $19 billion loss of the total estimated $65 billion due to the declining oil prices. The report further gives a negative growth outlook to major industries like manufacturing, automotive, basic materials, etc.
- Impact on the APAC region
Asian economies like China and India have been growing at a swift pace in the past few years. The COVID-19 outbreak that originated in China has already affected their economy, but experts believe that the country is on its way to recovery The industrial production has been hampered adversely and witnessed a reduction of 13.5% as per a BBC report. Though the Chinese are said to have contained the virus, it has already hit the economy. The IMF has, though, predicted an overall economic growth at 1.2% for China. It has also stated that many Asian economies would remain stagnant and will not see any growth.
This zero growth would happen after almost 60 years when many of the Asian countries were British colonies. India, too, is expected to register a highly reduced growth rate and since it was already reeling under a slowdown, the recovery can take longer than expected.
- Impact on Latin America
Latin American nations also depict a gloomy picture in terms of economic growth. With an increase in unemployment rates to 10% and a vast increase in the number of people living in the poverty-stricken conditions to 220 million out of 620 million. The country will witness the tough times, primarily due to the drop in prices of foods and commodities.
- Impact on the USA
With the number of cases still climbing and fatalities rising in thousands every day, the USA is struggling to contain the virus. With a record number of unemployment claims being filed in the most developed nation, it seems that the USA will need to come up with innovative and progressive policies to tackle this challenge and other issues that would emerge like business shutdowns, etc.
- Impact on Europe
The UK and other European countries will also suffer significantly and show a negative growth trend. Given the fact that most of the economies would have a downward growth trend, the unemployment caused due to job cuts and layoffs would remain high.
Measures being taken by governments
All the countries are battling to safeguard their economic interest and the well being of their citizens. Looking at the impact that COVID-19 has caused, it becomes vital to know about the various measures that governments are taking to overcome the challenge posed by coronavirus. Almost all the countries across the world are in a partial or complete lockdown situation. This is being done to help contain the spread of the virus. The recession that will come in the future has been termed as a lockdown recession.
However, many nations are already preparing for the same and formulating policies that will alleviate the severity of the challenge:
- Stimulus packages
Governments across the world are coming up with the huge stimulus and relief packages in the hope of providing relief to those who are severely impacted by COVID-19.
The USA alone has announced a relief package of $2 trillion as part of its unemployment benefits program. Keeping in mind the interests of the poor, the Indian government has also announced the $22.5 billion relief package under its Pradhan Mantri Garib Kalyan Yojana. Countries like the UK, Germany, Spain, Australia, and France have also announced stimulus packages to fight the corona pandemic. The G20 nations have also discussed the ways to overcome this challenge and planned to infuse $5 trillion into the economy as part of the various economic measures.
- Interest rate revisions
The Federal Reserve has cut down its lending rates, and many countries, including the UK, Canada, and Australia, etc. have also cut down their interest rates to keep the economic activity going.
- Postponing tax collection
Many countries have extended or postponed their tax filings deadlines to provide relief to the businesses which are already under stress due to the pandemic. The USA has postponed its date to 15th July from 15th April. Many countries like India and France have given some respite about tax filings.
- Enhancing liquidity in the economy
Central banks across the world are taking steps to boost liquidity in the economy. This is being done by using various fiscal measures like managing repo rates, purchasing assets, etc. The Federal Reserve has planned a $500 billion package to maintain liquidity in the US economy.
- Tax cuts
Some countries like the UK and China have also provided tax cuts to the specific industries which are profoundly impacted due to the COVID-19 pandemic. They specifically involve sectors like leisure, hospitality, and tourism, which have suffered huge losses in the current situation.
- Unemployment benefits
Several countries have rolled out limited period unemployment benefits to its citizens and encouraged businesses to not lay off their employees by contributing up to 80% of their salaries. The USA, Canada, France, Germany, the UK have also given its citizens cash benefits to help get through the coming months.
Apart from countries taking measures, various international financial institutions like the IMF and the World Bank and other bodies are actively involved in assessing the different ways which can help in easing the economic distress that countries are facing globally.
The COVID-19 pandemic has taken the world by surprise, and it is sure to leave a lasting and drastic impact on the people of all countries. If history is anything to go by, it will take several years for countries to catch up and undo the damage caused. However, the world and its economies have changed drastically since the last major pandemic we saw and we have new technologies at our disposal. The economic impact of the lockdown could have been much worse if digital tools didn’t allow people in the IT industry to be able to work from home.
Given the lasting impression that the pandemic has made, we might very much see a pre and post COVID-19 era, which would change our outlook towards how we work, we live, and essentially the entire human existence.
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