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The Economic Implications of Coronavirus

24 Apr 2020
By Amin Bagheri
Cinema in South Surrey, British Columbia, Canada closed due to  the COVID-19 pandemic. Source: Northwest

The condition created by the rapid spread of the Coronavirus is more than just the disease itself. Rapid spread of the coronavirus could push the world into recession this year as the outbreak increasingly disrupts the economy.

For the time being, it seems that the pandemic will continue to have adverse consequences. The event will hit the political, social, health, and economic sectors. In addition to the deaths caused by this virus, the damage and consequences of the pandemic have caused a crisis in the world economy.

With the current state of the economy, China, the US, Europe, and oil-rich countries will see a significant recession, which could disrupt the world economy for many years to come. The livelihoods of all countriesis are dependent on their economies. Under the influence of the Coronavirus, economies are apparently slowing down, which will bring down the world economy and cause unemployment to rise worldwide. Initial estimates by UNCTAD of the damage caused by the pandemic suggest that the virus could cause a trillion-dollar loss to the international economy. Other institutions have reported a 0.5 percentage point loss of global GDP.

The United States has taken the lead in preventing the economic downturn by printing money and paying hundreds of billions of dollars in tax credits and cash subsidies. Now we have to wait to see if other countries, including European countries, will be able to do so with financial restrictions. China, one of the world’s leading trading powers and site of the first outbreak of the Coronavirus, has stopped all transactions and movement into and out of the country. Even as it minimizes the number of infected people, foreign trade and commodities are suffering. Following this trend,  countries around the world are closing their doors to international trade and severely restricting the movement of people and goods. The downturn in the stock market will also continue, which means the loss of a significant amount of the wealth of ordinary people, drastically reducing their consumption.

There are both optimistic and pessimistic predictions about when and at what stage this outbreak will end. The good scenario is that the outbreak may be controlled by the end of May. But the bad scenario must be examined in many dimensions. The outbreak may take a year to control, and a second wave may recur the following year. The probability that the bad scenario will have multidimensional consequences is also very strong. One of these is a severe global economic downturn.

A new blow to the European economy

The situation of international cooperation in the world, and especially in the European Union, in the fight against the coronavirus is not doing well. The fragile European economy, which had been in crisis following Brexit and has begun to recover, is very vulnerable to Coronavirus. The decline in Germany’s business environment index shows the largest European economy is heading into a recession. As Italy and Spain have imposed unprecedented lockdown to stop the spread of the virus, the Italian and Spanish economies will also endure a severe recession for at least the next three months.

Despite the slowdown in the number of new cases of COVID-19 in Europe, the continent is still feeling the effects with four countries among the top five worst affected in terms of both confirmed cases and deaths of COVID-19. Although many European countries have implemented support packages and the European Central Bank has announced plans to buy corporate bonds, there are calls for more financial packages to be implemented. It appear that the current uncertain atmosphere will continue indefinitely, as it is not yet clear how long quarantine will continue in European countries and the continuation of this trend will cause serious damage to small and medium-sized businesses. When it is not clear when the continent will return to normal, economic growth in European countries, especially in larger economies, will decline significantly, especially in Italy, where industrial production is now at its lowest level in 11 years. It is therefore likely to be forecast that economic growth across Europe will stop in the next few months, which could potentially lead to a temporary recession in several countries.

The Coronavirus has also exacerbated internal divisions among EU members. Officials in some European countries, including Italy and Spain, have repeatedly criticized European countries’ policies and their lack of cooperation in meeting their medical, health, and financial needs. Several European countries, including Germany and France, have banned the export of protective equipment in response to the pandemic so that they do not face shortages at home. Criticism of the performance of EU officials has increased as it becomes clear that proponents of convergence policies in European countries are not cooperating with each other in resolving this crisis.

The emergence of the Coronavirus pandemic may put the world in an irreversible crisis. With the current situation, the deadly coronavirus is expected to significantly disrupt the global economy and lead to the unprecedented unemployment of millions of people. But at this point in time, despite the economic recession, the first and foremost important task for governments is to ensure that the physical and economic wellbeing of citizens will be provided for at all costs and that they will not be neglected. People have to be sure that no political ideology or any other factor will prevent this from happening.

Amin Bagheri is a member of the Iranian International Studies Association in Tehran. His research focuses on Iran and the Middle East.

This article is published under a Creative Commons Licence and may be republished with attribution.