COVID-19 Impacts Global Economy
COVID-19, or the novel coronavirus, has devastated the global population, infecting over 300,000 people and killing about 14,000. In an effort to flatten the infection curve and slow down the rate of disease transmission, people are practicing social distancing and staying in their homes. Companies are shutting down stores and plants and furloughing workers. To make things worse, the global economy and the financial markets are seeing a sharp decline in value.
Within the United States, the S&P 500, a collection of 500 of the largest-traded stocks, dropped by 9.5% on March 9, making this the S&P’s worst daily drop since the infamous Black Monday in 1987 when one of the largest stock market crashes occurred. The drop prompted a Level 1 circuit breaker in the US stock market, halting the New York Stock Exchange for 15 minutes, stopping the trading of any stocks in the market during that time. Two more Level 1 circuit breakers took place shortly afterwards on March 12 and 16. The unprecedented frequency of these circuit breakers highlight the severity of the economic situation in the US.
However, the US isn’t the only country whose economy has been severely afflicted by the virus. The Organization for Economic Co-operation and Development (OECD) recently downgraded its annual financial growth forecasts for almost every country in the world. Up until March, China’s economy was expected to grow by 5.7% this year but is now expected to grow by only 4.9%. Italy, the 8th largest economy in the world, is seeing a sharp decline. Its tourism industry that accounts for 14% of the country’s GDP has been completely shut down due to the many cancellations of trips and reservations caused by the virus. Overall, the global economy is expected to grow 2.4% this year compared to the previous forecast of 2.9%.
A main reason for the declining global economy is the lessening of spending habits worldwide apart from essential items such as food and medicine. Consumers are postponing and cancelling traveling, eating at restaurants, and social gatherings. In order to counter the negative effects of these actions on the economy, governments around the world are starting to push for monetary and fiscal stimulus, actions that include increasing the amount of money in the economy and lowering taxes. The US is designing a relief plan to provide cash payments to taxpayers and expand unemployment assistance and assistance to hospitals, state and local governments, and major U.S. industries. Treasury Secretary Steven Mnuchin commented, “Financing programs to help the U.S. economy pull out of the coronavirus crisis could be worth $4 trillion,” demonstrating the high expenses needed to relieve the economy. Similarly, in Europe, the European Central Bank (ECB) launched a €750 billion bond purchase scheme called the Pandemic Emergency Purchase Programme (PEPP). The goal of this plan is to have the ECB purchase bonds from creditors, removing their risk of not getting paid back. Although this virus is leaving a terrible mark on society, we have overcome tragic events like it in the past. And as Larry Brilliant, an epidemiologist who helped defeat smallpox said, “Everybody needs to remember: This is not a zombie apocalypse. It’s not a mass extinction event.”
Edited by the Spokesman Editorial Staff