Research Paper Example: The Coronavirus Disease and its Impact on the Economy
One of the most prominent effects of the COVID-19 pandemic is its global economic impact . International and local businesses had to stop their operations, many individuals lost their jobs, transportation became limited, and all the other forms of economic activity experienced a decline. This economic impact is present worldwide, making the COVID-19 pandemic not only a global health crisis, but also a financial calamity. The pandemic’s economic impact affected most of the components of economies, leading to increased poverty, high inflation rates, service sector decline, unemployment, high government expenditure, food supply disruption, and more.
Unemployment, Income Reduction, and Poverty Increase
The pandemic forced businesses to either stop their operations or adapt the working environment to protect employees from COVID-19 infections. Some businesses had to let go of employees to maintain a pandemic-friendly environment while others had to reduce their workforce because of low revenues. Premature deaths, absenteeism, and productivity reduction also contributed to the high unemployment rates (Pak et al., 2020). According to Elbehri et al. (2022), countries in Asia and the Pacific experienced a significant increase in the unemployment rate due to their small-scale economies and limited production factors. In Italy, 7.8 million workers lost their jobs because of the pandemic (Sanfelici, 2020). The Center on Budget and Policy Priorities estimated that tens of millions of U.S. citizens lost their jobs. Other parts of the world experienced a similar impact on unemployment rates, illustrating the adverse impact of the pandemic on the global workforce.
The high unemployment rate meant that individuals and households experienced a decrease in buying power. Individuals who lost their jobs cannot receive income and cannot pay for their regular expenses. Income losses and reductions prevented individuals from paying for rent, mortgages, student loans, medical expenses, and food (Tracking the COVID-19, 2022). Even households with working members still find it difficult to cover their expenses since some item prices have increased. Governments attempt to help with this issue through financial aid plans. However, financial aids are a temporary solution and the loss of income and jobs is still the main problem that requires resolution. Furthermore, these financial aid plans from the government contribute to another negative impact of the pandemic on the economy–increased government expenditure.
It is also important to note that the high unemployment rate and income reduction affected women more than men. According to Elbehri et al. (2022), formal employment and food sectors tend to reduce the income of women more than men. This trend negatively affects households where women are the main source of income, especially families with single mothers. It also shows that the pandemic causes a gender-specific economic issue due to the forced limitations in production. Businesses may be working through the biased perception that men are more cost-efficient than women, especially in fields like agriculture.
Migration and Transportation Decline
Since countries issued lockdown protocols to mitigate the spread of COVID-19 infections , the transportation sector experienced a significant decline. Airlines and seaports cannot promote long-distance travel because of restrictions, unless it is for mandatory purposes, such as food and medical supply transportation. According to the International Air Transport Association, airline revenues have an estimated loss of $314 billion from the decline in passenger carriage (Pak et al., 2020). The limitations also prevented migrants and immigrants from moving, causing them to lose opportunities (Elbehri et al., 2022). Additionally, reverse migration increased as individuals attempted to escape the pandemic, especially in areas with high infection rates. However, the increase in reverse migration cannot sustain the transportation sector allowing the decline to persist.
Every economic crisis leads to high inflation rates. The pandemic’s restrictions cause price increases and additional expenditures, leading many countries to experience high inflation. For instance, food shortages in the U.S. increased food prices, causing an increase in the consumer price index (McCracken & Amburgey, 2021). Individuals, especially those who have lost their jobs or experienced income reductions, will have difficulty purchasing goods and services. The significant change in consumer buying behavior can affect prices even after the pandemic. This can cause massive changes in economic activity, such as wage adjustments and persisting prices post-pandemic.
Financial and Oil Market Decline
Similar to inflation, economic crises greatly affect the financial and oil markets. The decline in economic activities prevents financial markets from experiencing growth. The global financial market experienced massive losses since many companies closed down or are recovering from debt due to the other effects of the pandemic. The economic decline also meant that the oil market experienced lower demand, especially due to import and export limitations (Pak et al., 2020). Even after the recovery of some countries, some financial markets remain in decline. For the oil market, the lifting of some restrictions has allowed it to recover. Additionally, other global issues have led to oil price increases which can be beneficial for the market.
Increase in Government Expenditure
The economic decline from the pandemic caused financial issues for both individuals and businesses. As mentioned earlier, income reduction and unemployment made it difficult for households to pay for their expenses. Airlines, seaports, and other businesses lost millions from lack of demand and the financial market decline. Governments had to issue financial aid to both citizens and businesses to prevent economies from collapsing. This was in addition to the increased expenditure on health care due to the pandemic. These increases in expenditure have led to governments increasing their debt (Elbehri et al., 2022). During the height of the pandemic, some countries even announced bankruptcy. Even with financial cushions, the economic impact of the pandemic made dents in most government budgets. Additionally, governments will have to address other issues, such as high inflation, as they attempt to pay off their debts.
Food Supply Disruption
Food supply disruption is the result of the other economic impact of the pandemic, especially oil price increases and changes in consumer behavior. The oil price increase affects the prices of most goods and since consumers rarely visit restaurants and malls during the pandemic, food prices increased in these establishments. The high unemployment rate, specifically in the agricultural field, made it difficult for farms to produce necessary goods for consumers (Elbehri et al., 2022). According to the Center on Budget and Policy Priorities, 30 million U.S. households in December 2020 reported that their food supply is insufficient. These disruptions caused various economic effects since food-related industries contribute greatly to any economy. The disruption can worsen the negative economic effects of the pandemic, as well as contribute to the ongoing health crisis.
Economic Effects on PEPFAR Countries
It is also important to discuss the economic effects of the pandemic in countries that are already experiencing a health crisis. An example of these countries is the PEPFAR countries. “PEPFAR” is an acronym for the U.S. “President’s Emergency Plan for AIDS Relief”. This group involves 50 countries that are addressing the rampant spread of HIV/AIDS. According to Oum et al. (2022), PEPFAR data showed that countries with high numbers of HIV cases experienced worse economic problems than those with lower infection rates. This worse condition can be due to various reasons, such as exhausted resources to address medical issues and the compromised health of the major population. Still, with continuous aid from the U.S., the PEPFAR countries may fare better than other regions.
The COVID-19 pandemic led to poverty, limitations in transportation, high inflation rates, global and local market declines, food supply disruptions, and put countries in debt. These economic effects are correlated with one another as some causes the other. Both individual citizens and businesses suffered from the economic impact of the pandemic, causing shifts in consumer behavior, price increase, loss of opportunities, and declines in the financial market. As the COVID-19 virus remains a threat to society, many of its economic impacts will persist despite the recovery in certain aspects.
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Cbpp.org. (2022). Tracking the COVID-10 Economy’s Effects on Food, Housing, and Employment Hardships. Center on Budget and Policy Priorities. Available at https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and#:~:text=The%20majority%20of%20jobs%20lost,to%20Labor%20Department%20employment%20data .. Accessed: August 11, 2022.
Elbehri, A., Temel, T., Ceylan, F., Mittal, S., Kularatne, D., & Dawer, D. (2022). COVID-19 Pandemic Impacts on Asia and the Pacific. Food and Agriculture Organization of the United Nations. Available at https://www.fao.org/3/cb8594en/cb8594en.pdf. Accessed: August 11, 2022.
Gaffern, D. (2022). Analysis: Oil’s Journey from Worthless in the Pandemic to $100 a Barrel. Reuters. Available at https://www.reuters.com/business/energy/oils-journey-worthless-pandemic-100-barrel-2022-02-24/. Accessed: August 15, 2022.
McCracken, M. & Amburgey, A. (2021). How COVID-19 May Be Affecting Inflation. Federal Reserve Bank of St. Louis. Available at https://www.stlouisfed.org/on-the-economy/2021/february/covid19-affecting-inflation . Accessed: August 15, 2022.
Oum, S., Kates, J., & Wexler, A. (2022). Economic Impact of COVID-19 on PEPFAR Countries. Kaiser Family Foundation. Available at https://www.kff.org/global-health-policy/issue-brief/economic-impact-of-covid-19-on-pepfar-countries/. Accessed: August 11, 2022.
Pak, A., Adegboye, O., Adekunle, A., Rahman, K., McBryde, E., & Eisen, D. (2020). Economic Consequences of the COVID-19 Outbreak: The Need for Epidemic Preparedness. Frontiers in Public Health. Available at https://doi.org/10.3389/fpubh.2020.00241. Accessed: August 11, 2022.
Sanfelici, M. (2020). The Italian Response to the COVID-19 Crisis: Lessons Learned and Future Direction in Social Development. Available at https://doi.org/10.1177/2516602620936037. Accessed: August 11, 2022.
Shang, Y., Li, H., & Zhang, R. (2021). Effects of Pandemic Outbreak on Economies: Evidence From Business History Context. Frontiers in Public Health. Available at https://doi.org/10.3389/fpubh.2021.632043. Accessed: August 11, 2022.