Global stock markets have also suffered dramatic falls due to the coronavirus outbreak, although they were able to recover from the losses quite quickly. The Dow Jones reported its largest-ever single day loss of almost 3,000 points on March 16, 2020 – beating its previous record of 2,300 points that was set only four days earlier.
The economic damage caused by the COVID-19 pandemic is largely driven by a fall in demand, meaning that there are less consumers willing to purchase the goods and services available in the global economy. This dynamic can be clearly seen in heavily affected industries such as travel and tourism. To slow the spread of the virus, countries have placed restrictions on travel and many people could not purchase flights for holidays or business trips. This reduction in consumer demand was the reason why airlines lost planned revenue and as a result they had to cut their expenses by reducing the number of flights they operate. Without government assistance, eventually airlines will also need to lay off stuff to cut more costs. The same dynamic applies to other industries, for example with falling demand for oil and new cars as daily commutes, social events and holidays are no longer possible. As companies start to reduce employment to make up for lost revenue, the worry is that this will create a downward economic spiral when these newly unemployed workers can no longer afford to purchase as many goods and services as before. This dynamic makes the economists contemplate whether the COVID-19 pandemic could lead to a global recession on the scale of the Great Depression.
Despite the clear danger that the global economy is in, there are also reasons to be hopeful that this worst-case scenario can be avoided. Governments have learned from previous crises that the effects of a demand-driven recession can be countered with government spending. Consequently, many governments are increasing their provision of monetary welfare to citizens, and ensuring businesses have access to the funds needed to keep their staff employed throughout the pandemic. In addition, the specific nature of this crisis means that some sectors may benefit from it. E-commerce, food retail, and the healthcare industry provide at least some economic growth to offset the damage. Also, a crisis-induced movement to online activities (working from home, purchasing goods online, contacting family, etc.) can be observed. It gives an opportunity for IT solution providers to increase their market shares.
Finally, there is the fact that the crisis may have a clear end date when all restrictions can be lifted – this seems to be possible when the majority of the global population is vaccinated against COVID-19. It could then enable the global economy to experience a sharp rebound once the pandemic is over. There are still many variables that could affect such an economic recovery – for example, a reduced supply of goods and services to meet lower demand could create mid-term shortages and price increases – but there are some reasons to think that, with the right mix of appropriate government responses and luck, some of the more apocalyptic predictions may not come to pass.
