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Saturday, April 17, 2021

Economic effects of pandemics – brief summary

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Since March 2020, the sudden shutdown and then the gradual resumption of activity due to the Covid-19 pandemic have led to a major economic and social crisis worldwide. Recessions, business failures, and sharp increases in unemployment have multiplied.

The effects of pandemics on the global economy

The Covid-19 pandemic is having a very strong impact on the global economy. Indeed, the measures took place and led to a drastic drop in consumption and production. This partly explains the economic shutdown and the stock market crash of 2020. 

Legal restrictions on travel and gatherings greatly impacted several sectors such as transportation, catering, accommodation, tourism, culture, film production, live shows, and sporting events. Many sectors were obliged to shut down their activities with repercussions on the industrial sectors (aeronautics, automotive, equipment manufacturers, etc.) and their subcontractors.

As a result of an international health crisis leading to a large part of the world population’s lockdown, this economic crisis is considered unprecedented in its nature and its violence. It is higher than that of previous crises because it affects almost all sectors, including the countries where the pandemic’s impact is less severe (during the first wave), such as Japan, Canada, or Germany.

The mechanism of economic crisis

The health crisis became an economic crisis under the effect of two shocks: a massive supply shock and a demand shock, also massive. The supply shock represents a drop in production linked to the appearance of constraints on the supply of intermediate consumption by the shutdown of factories linked to the confinement of part of the workforce and reducing service provision. The demand shock, depending on the country, characterizes a fall in external demand, implying a fall in exports (for example, a fall in foreign demand for luxury products) and by the fall in domestic demand in services such as transport, hotels, and restaurants, etc.

Besides, regardless of industry, non-essential businesses unable to implement remote work from and physical distancing rules particularly were suffering during the crisis. While all sectors are negatively affected on average, the drop in sales or the cessation of sales in the absence of e-commerce endangers businesses and self-employed people, particularly the smallest structures that do not have sufficient cash flow to face a continuing crisis.

Online trading and investments

In the context of general panic, some have achieved great success. Public interest in the topic of online trading has increased dramatically. Among other markets such as crypto and stocks, Forex trade also intensified. 

That can be of benefit to many countries’ economies. In addition to learning about trading, more and more people are starting to improve their financial skills. Thanks to this, it is possible to transfer funds from static savings deposits to developing the economic sectors through investments. 

The global crisis has deprived many of regular income and dried up entire sectors. Thanks to the openness of financial markets, many people have found the solution for their financial issues by joining online training platforms. 

The big winners

The coronavirus has not dried up or impoverished everything. The year 2020 leads to a boom in digital entertainment and an online shopping fever, following a profound change in consumption patterns. The example is the growth in Apple’s shares’ price, which rose more than 150% from March 23 to September 2, 2020, or by Tesla stock, whose price has jumped more than six times during the same period.

The home transformed into an office, a school, a cinema room, and a restaurant open morning, noon, and evening. Everywhere, work from home has boosted computer sales and dried up stocks of office chairs at Ikea.

Whether it is isolation measures, travel bans, or border closures: the coronavirus pandemic and its consequences have massively changed economic landscapes and our behavior. It has been extremely damaging to many economic sectors, but some have and will continue benefiting from it.

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