Covid-19 Economic Shock

A shock is something that disturbs the economy’s equilibrium. A macroeconomic shock is any unanticipated incident that leads to a large scale unexpected effect on the economy. The current global Covid-19 pandemic is a large economic shock as it promises to decrease demand and supply for goods and services as well as disrupt the flow of credit and cash to finance normal operations and employees’ wages (McKibbin & Fernando, 2020).

Corona Virus illnesses and deaths have decreased the number of employees resulting in a decrease in the overall output. Government measures to control the pandemic, especially the suspension of air flights, will reduce the production of export-based outputs. The suspension will limit businesses from expanding into new territories, and thus organizations will only produce outputs that are enough for local markets.

Covid-19 lockdown Measures, testing for Corona Virus, and treating Covid-19 patients will increase public spending, and the governments, especially in developing countries, will raise public debts to fund this spending. More countries such as Germany and the Netherlands will issue more debts as Germany has already announced to increase debt issuance by 156 billion Euros (McKibbin & Fernando, 2020). There will be competition for public debts, which will increase the demand for public debts. As a result, lending countries will increase the interest rates of the debts to increase their earnings.

Corona Virus Disease has changed almost all aspects of our daily lives, including the consumption of goods and services. If countries continue implementing lockdown measures, there will be more shutting of shops and restaurants and more suspensions of air travel hence restricting what people can consume. The consumers’ household income is likely to continue decreasing in the coming months, and thus, they will not be willing to pay more, consequently limiting their consumption. However, people will spend more on groceries and home entertainment because they will spend more time indoors.

The Corona Virus Pandemic affects Foreign Direct Investment (investing in a foreign country) all over the world. These investments could fall by approximately 35% according to UNACTED predictions due to the spread of the virus (Chidede, 2020). These investments will decrease mostly in countries severely hit by the pandemic as foreign investors fear to contract the disease from these countries.

The Covid-19 Pandemic will lower the real wages of individuals depending on their ability to work from home since most people are confined to their homes either voluntarily or by government orders. Workers can perform occupations such as financial and business operations from homes, and hence these workers will not lose their salaries. On the contrary, professions such as food preparation and serving cannot be carried out from home, and thus, these workers may completely lose their salaries. Some workers will experience a decline in their real wages but will be able to keep their jobs while others, especially low-income earners, will lose their jobs entirely.

Work effort is another economic variable that has been affected by the outbreak of the COVID-19 pandemic. The disease has caused more than 383 000 deaths, including well-skilled employees, and if this trend continues, there will be a significant reduction in the available work effort (McKibbin & Fernando, 2020). More employers will have to shut down their businesses or to lay off some workers because of the reduction in the demand for the business products and to comply with social distancing measures.

Bibliography

Chidede. (2020). Covid-19 impact on investment in Africa. Covid-19 impact on investment in Africa .

McKibbin & Fernando. (2020). The global macroeconomic impacts of COVID-19: Seven scenarios. The global macroeconomic impacts of COVID-19: Seven scenarios.

https://www.brookings.edu/blog/future-development/2020/03/17/the-triple-economic-shock-of-covid-19-and-priorities-for-an-emergency-g-20-leaders-meeting/