The COVID-19 viral pandemic continues to have unprecedented globally shared phenomena with wide-ranging repercussions. The pandemic has disrupted lives across all countries and communities and negatively affected global economic growth in 2020 beyond anything experienced in nearly a century. High-level estimates show that the global economy during 2020 reduced to an annualized rate of -3.4% to -7.6%, with a recovery of 4.2% to 5.6% projected for 2021. Gross domestic product, colloquially known as GDP, is the accumulated value of all finished goods and services produced in a country and is measured annually. GDP is regarded as an indicator in determining the economic health, growth, and productivity in a country.
The above graph shows the US GDP in billions of dollars from 1986 with projections through 2026. There was a major impact on global GDP in 2009 due to the global financial crisis during which the global GDP came down to $60.5 trillion from $63.9 trillion. The COVID-19 pandemic also had a significant impact in which the GDP came down from $87.3 trillion in 2019 to $84.5 trillion in 2020. This was a reduction of 3.22% or $2.8 trillion.
Global stock markets have also suffered due to the coronavirus outbreak, although they were able to recover from the losses quite quickly. The Dow Jones reported its largest single day loss of almost 3,000 points on March 16, 2020 – beating its previous record of 2,300 points that was set only four days earlier.
The economic damage caused by the COVID-19 pandemic is largely driven by a fall in demand, meaning that there are less consumers willing to purchase the goods and services available in the global economy. One of the main industries that has suffered by this is travel and tourism. To slow the spread of the virus, countries have placed various health and travel restrictions and due to less demand, airlines had to cut the number of flights offered, which led to job cuts and the decrease of various economic impact drivers.
The same dynamic applies to other industries. For example, a reduction in demand for oil and new automobiles was seen as daily commutes, social events and holidays became no longer possible. As companies start to reduce employment as one tactic to make up for lost revenue, the worry is that this will create a downward economic spiral when these newly unemployed workers can no longer afford to purchase as many goods and services as before.
Despite all these challenges, global GDP in 2021 is expected to grow by 5.6% and a reasonable growth is projected for the next three years as well. The main countries driving this growth are the US and China. The United States and China are each expected to contribute about one quarter of global growth in 2021. The US economy has been bolstered by massive fiscal support, vaccination is expected to become widespread by mid-2021, and GDP growth is expected to reach 6.8% this year, the fastest pace since 1984. On the other hand, China’s economy – which did not contract last year – is expected to grow by 8.5% as the country’s focus shifts to reducing financial stability risks.
In order to make the economic recovery sustainable and global, some of the key drivers needed would be:
· Higher percentage of global population getting fully vaccinated.
· Continuous government stimulation to ensure business recovery which will in turn reduce the unemployment rates.
· Maintaining inflation within an acceptable range so that prices do not increase significantly and burden people with limited resources.
On the other hand, a more persistent pandemic, a wave of corporate bankruptcies, financial stress, or even social unrest could derail the recovery. As is true in any facet of a functional society, it will take a dedicated, collective effort to breathe life back into this global economic recovery.
References
Congressional Research Service. (2021, July 9). Global Economic Effects of COVID-19. https://fas.org/sgp/crs/row/R46270.pdf.
O’Neill, A. (2021, July 30). Global GDP 2014-2024. Statista. https://www.statista.com/statistics/268750/global-gross-domestic-product-gdp/.
World Bank. (n.d.). Global economic prospects: The global economy: On track for strong but uneven growth as covid-19 still weighs. https://www.worldbank.org/en/news/feature/2021/06/08/the-global-economy-on-track-for-strong-but-uneven-growth-as-covid-19-still-weighs