problem loading...

COVID-19's Impact on the Global Economy

William Li
Grade 10
The past few months have shown us how a health crisis can turn into an economic shock where liquidity shortages and economic disruptions can amplify tremendously. As the health and human toll grow, the economic damage as a consequence of COVID-19 is already evident and represents the largest economic shock the world has experienced in decades.

The World Bank has released a disheartening report on Global Economic Prospects for June 2020. The forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weights—the deepest global recession in decades. To put this into perspective, a 5.2 contraction in the economy will be the deepest recession since World War 2. Governments have been adapting to counter the downturn with fiscal and monetary policy support but regardless of this reality, the fact remains that many countries will find it difficult to recover from the economic shock. In terms of long-term impacts, the deep recessions triggered by the pandemic are expected to “leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages”, as stated by the World Bank. Unfortunately, it is now a consensus that the impacts of this virus on the economy have gone way beyond what analytics were originally forecasting in the early stages of the pandemic.

Developing countries have not had it easy either. In a similar manner, emerging market and developing economies are due to shrink by 2.5 percent. This has come as a shock to many as it is their first contraction as a group in at least 60 years. Per capita incomes, meanwhile, are forecast to fall by 3.6 percent. Along with these forecasts, the World Bank currently estimates show that 60 million people could be pushed into extreme poverty in 2020 (and) these estimates are likely to rise further, with the reopening of public places and an increase in gatherings. The bottom line is still heavily dependent on the course of action that governments take. Success in mitigating the impacts of the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced.

Take this article as a reminder that regardless of what governments decide to do, you can still do your own part by staying at home, avoiding non-essential outings, and cleaning your hands frequently!