COVID-19 Virus Effect on the Economy

A COMPREHENSIVE REVIEW

Background

According to the European Centre for Disease Prevention and Control, the first 7 cases of the unknown virus were reported on 31st December 2019 (ECDPC, 2019). It was only after later testing that samples of corona virus were found in the Huanan Seafood Wholesale market where the 7 people had come from (ECPDC, 2019). Procedures to close the market were followed and it is not until 9th January, 2020 that the COVID-19 virus was announced to the world. Presently, the COVID-19 death toll is at more than 28000 world-wide. The virus outbreak is a chance for countries to examine different emergency procedures they have in placeā€”if any. In essence, the following paper is an exploration of the effect COVID-19 has had on various parts of the economy and how the world is coping with the catastrophe. 

A Review of the COVID-19 Virus Effect on the Economy

There is no doubt that the COVID-19 virus breakout, is slowly causing an economic shock. However, the extent of the shock is yet to be discovered as the world goes into lock-down. The most affected countries have been China, Italy and Spain (The Washington Post, 2020). Various operations such as import and export of goods have been slowed down in almost all parts of the world. The following part is an exploration of the potential impacts of the COVID-19 virus outbreak on the variables of interest. Each of the variables of output, interest rates, consumption, investment, real wages and work effort, will be explored separately in order to show the coherence in all the variables of interest related to the economy.  

Output

The minor virus outbreak shock has led to a decrease in output. Many factories in China have been closed down due to the quarantine enforcements (The Washington Post, 2020). The closure by most manufacturing plants in the world has been as a result of the quarantine directives to stop the spread of the virus. Essentially, there is bound to be a drop in the net production as well as output levels in most industries across the globe. 

Interest Rates

The World Bank, leading other countries financial institutions across the world, is looking for strategies to curb the minor shock. Apart from providing emergency funds to help in combating, as well as containing the virus, the World Bank is helping to advice countries on financial decisions to help in riding out the shock. Interest rates on loans will be one of the strategies as well as various debt restructuring procedures (The World Bank, 2020). The strategy that most countries are likely to enforce are loan extensions and grace periods for most loans. 

Consumption

The global lock-down will lead to reduced consumption. The result of enforcing quarantine is that people will not have access to surplus funds. As a result, consumption levels are expected to reduce on the use of some commodities. However, there is bound to be a rise in food consumption as students and parents per household is higher in most parts of the world. 

Investments

The stock market has experienced a down-turn in the entire globe. Most markets are showing stocks plummeting to more than 40% losses (The Guardian, 2020). Consequently, the minor COVID-19 shock will have significant impacts on investments. The first major impact is that assets are reducing in prices. Investment efforts by individuals as well as corporations are bound to reduce until the situation of the virus is properly mitigated. 

Real Wages

Following the closure of accommodation as well as social establishments in the world, some workers are seeing their pay checks reduced to almost half. Some industries have also done lay-offs in order to weather the minor storm. Real wages will be reduced significantly by the minor shock (Voytko, 2020). The reduction will translate to reduced spending until the virus is cleared. 

Work Effort

Although not a direct effect of the shock, work effort has experienced a direct reduction from the quarantine directive. Many people are uncertain about their jobs because of the shock. Essentially, it is essential that work efforts be reduced in order to combat the virus spread. For this reason, work effort has been reduced to the bear minimum by governments and corporations advising people to work from home. 

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How the World is Coping

Most countries across the globe have put in place several measures to aid in curbing the spread of the virus as well as financial strategies to weather the storm. Firstly, as a health measure, many countries have applied a lockdown that entails curfews in some countries. Consequently, international flights in most countries in Africa, Asia, the United States and England have been cancelled from the beginning of March. Results of the lockdown are apparent from the way China has been able to curb the spread by enforcing urban lockdowns. Countries like Kenya have applied curfews from 7pm to 5am. As a result, the country has not reported any new cases as at 26th March 2020 (Achuka, 2020. The Daily Nation). On the other hand, the financial strategies being applied to cope with the virus are geared more toward fighting the spread of the virus. An article by the World Economic Forum, puts it that decisive health actions matter more than financial decisions (WEF,2020). On the other hand, financial strategies to cope with the virus are expected to take effect 90 days from their formulation. In this way, therefore, the time-line to eliminate the virus will determine how far the financial as well as health emergency strategies applied will go.  

Conclusion

The COVID-19 outbreak is a major lesson on economic shock. The suddenness of its occurrence as well as the rapidness of infection are the main causes of shock to daily economic variables and drivers. However, there are indications that the virus is a minor shock bound to be mitigated within the year, we expect. Consequently, leaders as well as policy makers have a lot to learn from the outbreak. It is high time that emergency funds become a reality instead of mere political discussion. High military spending has been proved to be nothing against a deadly virus like the COVID-19!

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