Economic Impact of COVID-19: Clarity in a Time of Crisis

COVID-19 is taking its charge on the world with several deaths and illnesses showing no signs of reducing causing economic despair. Travel restrictions and imposed lockdown to curtail the spread of virus continue to impact the outlook of the emerging economies of the world. Despite the sheer increase in the number of cases many firms have started to reopen to fight against the bigger threat of economic loss and poverty. The economic damage is inevitable and is unparalleled and represents the highest shock that the world economy has ever faced.

Economic impact of COVID-19

In the period of crisis when there is an acute shortage of resources and the capacity of institutions is limited, the economy is surely expected to experience shocks and may lead to deeper poverty crisis. Measuring poverty with disrupted data is a difficult task; it is based on the assumption of how the economy will grow and how much the poor will be benefitted from that growth. According to a study, the pandemic might result in contraction across various emerging sectors of the developing economies and even labor productivity and the marginal output can get affected by this global crisis. Recession is anticipated to have long-lasting effects like reduction in the investment, world trade fragmentation which is a result of eroded income and other human capital due to an increase in the unemployment rate during the time of the crisis.

“Indian GDP is expected to slow down between 1-2% as per various estimates, with IMF projecting 1.9% for FY21 as compared to the rest of the world, which will plunge into negative GDP except China.” - Economic Times (Mumbai)

Source: KNOEMA

The rate of Unemployment has observed a rise in 2020 due to the prevalence of Covid-19. As of 2020, South Africa accounts for 33.9% of the unemployment rate followed by Greece, Spain, Columbia and Costa Rica respectively.

Source: KNOEMA

By the end of 2020, a second outbreak is anticipated to impact the economy thus leading to a rise in the rates of unemployment. South Africa is expected to reach 34% of rate of unemployment followed by Spain, Columbia, Greece and Costa Rica respectively.

According to a report by Fatpos Global, people are concerned about their vulnerability to financial crisis due to rising unemployment. Pandemic is expected to shrink the per capita income of every individual driving the world economy into recession. Subsequent lockdowns and pause in the world activity are going to have fare worse effects than the great depression of 1929.

Indian Economy

Indian economy cannot escape and isolate itself from the consequences the world is facing and with subsequent shutdowns, the economy has almost come to a halt. However, the Indian economy is far better than the economies which are primarily dependent on exports. According to the IMF’s report, the Indian GDP is expected to contract to 1-2% which is the lowest that the country has faced in decades. Policies of RBI like reduction in Cash reserve ratio, repo rates reduction is giving momentum to the Indian economy, however, the actual impacts are still uncertain depending upon how big and long-lasting the recession will be.