How the Covid-19 Pandemic has Affected the Global Economy

The rapid geographical spread of the coronavirus and the high infection rates have spread fear around the globe disrupting global economic activities. According to the Organization for Economic Cooperation and Development (OECD), the world economy is projected to grow by 2.4%, from an estimated 2.9% in 2019, the slowest pace since 2009, during the 2008/2009 financial crisis.

The virus has affected both developed and developing countries in terms of;

1. International Trade

The virus has caused a lockdown in countries such as China, and now very recently Italy to contain the spread of the disease adversely affecting the global supply chain. China has been the world’s largest exporter since 2009 exporting USD 2.7 tn in 2018, which was approximately 10.8% of the world exports according to the World Bank. The disruption of the global supply chain is likely to cause input shortages causing most manufacturing plants and retailers to suspend operations. The demand for oil has also slowed down since the outbreak of the virus with major manufacturing hubs such as China and the US either shutting down or slowing down causing the oil prices to plummet down. As of 11^thMarch, crude oil prices had declined by 48.0% YTD to USD 33.0 per barrel. In 2018, China and the US were the largest oil importers demanding 20.2% and 13.8% of the total global oil imports respectively. Despite being the largest exporter in the world, China is also a major importer of goods and services, importing 11.4% of the world’s total imports. Global economies that depend on China as a customer have already begun experiencing the effects of the lockdown due to the slowdown in demand.

2. Financial and Commodity Markets

As the virus continues spreading to major economies around the world, most investors in the equities market have become net sellers, wiping out any year to date gains that major indices had made. Most investors have moved to place their money in safer haven assets such as gold, driving their prices upwards with the YTD performance of gold increasing by 9.7% as of 13^th March 2020. The collapse of the oil prices mentioned earlier has also negatively affected the stock markets with investors rushing to dump stocks in the energy sector. The graph below shows the year to date performance, according to Reuters, of major indices as at 13^th March 2019 with all the major world indices recording declines in their year to date performances. Companies focused on diagnosing, treating, and preventing the pandemic have however been recording gains in their stock prices. Some of these stocks include Vaxart Inc and Inovio Pharmaceuticals Inc, which have recorded YTD gains of 419.4%, and 196.0%, respectively.

3. Macroeconomic Indicators

As stated earlier, the global economic growth for 2020 is likely to come in at a slower pace due to the spread of the coronavirus. Most Central Banks around the world have taken a dovish monetary policy stance in a bid to boost the economy amid the negative macroeconomic effects emanating from the coronavirus outbreak.