The Effects of the Covid-19 Pandemic to Worldwide Economy

Research PaperEconomics
Jan 3, 2007

When COVID-19 emerged in Wuhan, China in December 2019, the world endured the effects of the pandemic not only in terms of health but also in business and finance. The pandemic triggered prolonged lockdowns that were intended to curb the rapid spread of the disease. Schools and officers were shut down, international borders were closed, almost everyone was made to stay home, and the global supply chain for numerous industries came to an abrupt halt. These events eventually resulted in the world’s economy taking a huge blow since the cessation of business meant a loss of revenue for workers, companies, and governments. While the COVID-19 pandemic primarily affects public health, it also has a lasting impact on the global economy and caused what is now known as the Market Crash of 2020.

The COVID-19 Pandemic

In order to understand how COVID-19 impacted the economy and caused the market to crash, it is important to first understand the intricate relationship between public health and the global economy. Economies can only function if people can conduct business without too many barriers. For instance, the transport of raw materials and goods from one place to another is essential to almost every industry, especially in a highly globalized world where national and regional economies are not only interrelated but also interdependent. However, world leaders’ fear of COVID-19 spreading in their countries forced them to make the decision to implement strict health protocols including lockdowns and border closures. This in turn forced many businesses to stop their operations. Since 2020, many businesses have been forced to temporarily stop operations or in more extreme cases close due to bankruptcy (Lee, 2020). Consequently, many employees lost their jobs. The impact of the pandemic on the business industry is indeed severe to the point that the world is in danger of experiencing a recession that is much worse than what was experienced since World War II.

As of writing, the World Health Organization or WHO reports that almost 110 million people are reported to have been infected with COVID-19 and there have been over 2 million deaths caused by the virus (WHO, 2021). COVID-19 has spread to a total of 223 countries and quite alarmingly, that number is not decreasing. Fortunately, a host of pharmaceutical companies have already developed  vaccines against the coronavirus , with seven of the vaccines determined as ready for use. The safety of vaccines has been demonstrated and thus some countries are already making it a priority to have their citizens vaccinated. By far there have been a total of 181 million doses of vaccines administered in 79 countries (Randall et al., 2021). This is so that people’s health may be more protected than before and to give the global economy a chance to recover.

Causes of the 2020 Market Crash

The 2020 Market Crash was primarily caused by the COVID-19 pandemic, although there were of course other factors that contributed to its emergence. COVID-19 caused extreme widespread panic as the pandemic was one of the things that the world welcomed in 2020 as it rapidly spread around the globe. It even affected the global stock market as the virus heavily affected the investor’s decisions. Investors felt powerless facing the virus and so many felt that they had to retract their investments. At one point, the number of sellers exceeded the number of buyers in the stock market. For that, the 2020 Market Crash has been dubbed the Coronavirus Crash. The COVID-19 pandemic also greatly impacted many of the most essential industries including oil, food, services, external financing, stock trading, manufacturing, tourism, and export industries (Frazier, 2021). As the global economy came to an astonishing halt due to being crippled by the COVID-19 pandemic, the unemployment rate soared and the stock market crashed. Emerging markets have also been affected as international investments have avoided them which caused a slowdown in developing countries. The value of currencies also decreased so much that the prices of imported goods rose.

However, the COVID-19 pandemic was not the only one responsible for the March 2020 Market Crash. There were other factors that led to the Coronavirus Crash. Days before the market crash, the oil industry had already been facing a dilemma as an oil price war broke out. Saudi Arabia and Russia clashed over oil production cuts which ultimately made matters worse (Ma et al., 2021). Since COVID-19 emerged in Wuhan at the end of 2019, the demand for oil decreased as flights got canceled and factories lay idle. Saudi Arabia stood their ground to consolidate its position in the oil industry and increased its production despite the low price of oil.

Another factor to the 2020 Market Crash was the trade war going on between the United States and China. That trade war had been going on for a few weeks prior to the Coronavirus Crash. This event was when the investors first started to feel stressed and began to wonder if they should pull back on their investments. There was also a possible recession that increased investors’ fears (Elms, 2021). And as proof that COVID-19 should not solely shoulder all the blame for the 2020 Market Crash, the stock markets have surged a couple of times in between the emergence of the virus and the 2020 Market Crash.

Effects of the 2020 Market Crash

It goes without saying that the market crash that happened at the onset of the pandemic set record plunges in the stock market. The 2020 Market Crash started on March 9 when the Dow Jones Industrial Average dipped 7.79% which equates to it losing 2,013 points that day. Investors were starting to flee because of the COVID-19 scare. In addition, Standard & Poor's 500 Index and the National Association of Securities Dealers Automated Quotations dropped 7.6% and 7.29% respectively (Li, 2020). Just when investors thought that the worst is over, the Dow Jones Industrial Average dipped yet again on March 12 by 9.99%. Simultaneously, Standard & Poor's 500 Index and the National Association of Securities Dealers Automated Quotations closed at -9.51% and -9.43%, respectively (Stevens, 2020a). This event is heart-stopping for it came real close to being classified as a correction. These figures effectively ended the bull market that had been going on for 11 years straight.

The extreme health protocols nearly broke the financial market – in The Wall Street Journal’s words. On March 16, 2020, the Dow Jones Industrial Average, the Standard & Poor's 500 Index, and the National Association of Securities Dealers Automated Quotations closed down at -12.93%, -11.98%, and -12.32%, respectively (Stevens, 2020b). Just for the first half of March 2020 alone, the stock market faced a bear economy. Everybody knows that the stock market is volatile although the market crash took everyone by surprise. The Dow Jones Industrial Average, the Standard & Poor's 500 Index, and the National Association of Securities Dealers Automated Quotations experienced their worst day since 1987. The Standard & Poor's 500 Index and the National Association of Securities Dealers Automated Quotations came close to being classified as a bear market with their loss of -19.23% and -19.41%. However, the Dow Jones Industrial Average did not escape the bear market for it hit a low point of -20.55% (Stevens, 2020b). These events are worrying for those involved in the stock market because corrections and bear markets are mostly driven by the investors’ emotions. This is evidence of the fear that the investors felt over the spread and effects of COVID-19 on the whole world and the economy.

A Post-COVID-19 Global Economy

Fortunately, these market crashes of 2020 did not last and have only three significant dates involved because reason eventually outweighed emotion. As long as there are investors who can keep a sound mind and let their investments be despite the extreme uncertainties, market crashes will never last long (Daily Monitor, 2020). Up until now, the global stock market is still experiencing the effects of the COVID-19 pandemic. The industry’s landscape has changed a lot since the pandemic began and there are new companies emerging in the market. Some countries’ service and tourism industries are still down due to enforced lockdown protocols and social distancing but technology companies are booming as technology becomes even more essential as more people have to work and study remotely. The poorer countries are taking this harder as their economies have not been getting better.

Crucial to the recovery, of course, was the abating of the pandemic’s wrath itself. The massive vaccination drive that saw the delivery of over 12.7 billion shots across the globe (Bloomberg, 2022) increased the world’s immunity against the disease. Meanwhile, the emergence of less virulent variants like the Omicron variant of COVID-19 also helped eliminate some of the fear and uncertainty associated with the virus’s earlier more virulent form (Zimmer & Jacobs, 2022). These developments helped ease many of the restrictions that prevented businesses from operating, ultimately resulting in the resumption of economic activities in many countries. The world is coming to terms with the fact that COVID-19 might be here to stay. But the world with COVID-19 is not necessarily a bleak one. As the world emerges from the darkest days of the pandemic, so will the economy recover and thrive again.

Conclusion

The Market Crash of 2020, also known as the Coronavirus Crash, is certainly one of the most significant economic crises to occur in modern history, on a par perhaps with the 2008 global recession and the Great Depression of the 1930s. The main cause of the crash was the massive disruption to global business brought about by the lockdowns caused by the spread of disease. Those three dates that the stock market dipped to astoundingly low levels serve as evidence of the power of pandemics to bring the global economy to its knees. But as the world emerges from these uncertain times, it is also slowly reclaiming the global economy’s robustness, albeit in different rates of success given that developed countries have far higher resilience than developing countries. But over time, the economy will reach pre-pandemic levels, at which point society must remember the lessons it learned from this monumental event. 

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References

Bloomberg. (2022, October 7). More than 12.7 billion shots given: COVID-19 tracker . https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/

Daily Monitor. The main causes and effects of the 2020 stock market crash . (2020, May 19). https://www.monitor.co.ug/uganda/business/finance/-the-main-causes-and-effects-of-the-2020-stock-market-crash-1890740

Elms, D. (2021). Trade disrupted: Global tensions, US-China trade war and COVID-19 impact. Southeast Asian Affairs, 39-52. https://www.jstor.org/stable/27075074

Frazier, L. (2021, February 21). The Coronavirus Crash of 2020, and the investing lesson it taught us. Forbes . https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=7cfcfd1046cf

Lee, Y. N. (2020, April 24). 7 charts show how the coronavirus pandemic has hit the global economy. CNBC. https://www.cnbc.com/2020/04/24/coronavirus-pandemics-impact-on-the-global-economy-in-7-charts.html

Li, Y. (2020, March 9). Dow sinks 2,000 points in worst day since 2008, S&P 500 drops more than 7% . CNBC. https://www.cnbc.com/2020/03/08/dow-futures-drop-700-points-as-all-out-oil-price-war-adds-to-coronavirus-stress.html

Ma, R. R., Xiong, T., & Bao, Y. (2021). The Russia-Saudi Arabia oil price war during the COVID-19 pandemic. Energy Economics. doi: 10.1016/j.eneco.2021.105517

Randall, T., Sam, C., Tartar, A., Murray, P., & Cannon, C. (2021, February 17). More Than 181 Million Shots Given: Covid-19 Tracker . Bloomberg. https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/

Stevens, P. (2020a, March 12). Stock market live Thursday: Dow tanks 2,300 in worst day since Black Monday, S&P 500 bear market. CNBC. https://www.cnbc.com/2020/03/12/stock-market-today-live.html

Stevens, P. (2020b, March 17). Stock market live Monday: Dow drops 13%, Trump says recession possible, trading halted at open . CNBC. https://www.cnbc.com/2020/03/16/stock-market-today-live.html

World Health Organization. (2021). WHO coronavirus (COVID-19) dashboard. https://covid19.who.int/

Zimmer, C. & Jacobs, A. (2022, January 3). Omicron: What we know about the new coronavirus variant. New York Times. https://www.nytimes.com/article/omicron-coronavirus-variant.html

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