Global economic impact after Covid-19

Global economic impact after Covid-19

The COVID-19 epidemic is dramatically influencing large-scale business and consumer behavior. Both the public and private sectors are striving to slow the spread of the disease and contain COVID-19 infections. Although the full economic consequences of this event are not yet clear, we know that the effects of the virus and the drastic measures being taken to contain it, are already precipitating several changes in the different sectors of society.

1.      Current situation

The COVID-19 pandemic, which has already infected nearly 5 million people in 148 countries, resulting in more than 300,000 deaths, has the potential to reach a large proportion of the global population. Some estimates suggest that 70% of the world's population can be infected.

The crisis has already turned into an economic shock affecting the labor market, not only supply (production of goods and services), but also demand (consumption and investment). Production disruptions, initially in Asia, have spread across supply chains around the world. All companies, regardless of size, are facing serious challenges, especially airlines, tourism and hospitality companies, with a real threat of significant declines in revenues, insolvencies and job losses in specific sectors. Maintaining business operations will be particularly difficult for small and medium-sized businesses. After travel bans, border closures and quarantine measures, many workers cannot go to their workplaces or do their jobs, which has indirect effects on wages, especially for precarious workers. Consumers in many countries are unable or unwilling to buy goods and services. Given the current environment of uncertainty and fear, companies are likely to delay investments, purchases of goods and hiring workers.

The outlook for the economy and the quantity and quality of employment is deteriorating rapidly. Although updated forecasts vary considerably and underestimate the situation, they all point to a significant negative impact on the global economy. These worrying figures show growing signs of a global economic downturn.

Rapid and coordinated policy responses at national and global levels, with strong multilateral leadership, are needed to limit the direct health effects of COVID-19 on workers and their families, while mitigating the indirect economic consequences on the world economy. Protecting workers and their families from the risk of infection should be a priority. Measures must be taken to protect those who face loss of earnings because of infection or reduced economic activity, as they are essential to stimulate the economy. Wage protection also mitigates disincentives against disclosing potential infections, especially among groups of low-income workers.

Deeper institutional and political reforms are also needed to strengthen demand-led recovery and build resilience through robust and universal social protection systems that can act as automatic economic and social stabilizers in the face of crises. This will also help to restore confidence in institutions and governments.


2.      Impacts: How is COVID-19 affecting the world of work?

COVID-19 will have a very long-term influence on labor market outcomes. In addition to urgent health concerns for workers and their families, the virus and subsequent economic shocks will have a huge impact on the world of work in three main dimensions:

A.      The number of jobs (unemployment and underemployment);

B.      The quality of work (for example, wages and access to social protection);

C.      Effects on specific groups that are more vulnerable to obtaining a job market.

Underemployment is also expected to increase on a large scale. As witnessed in previous crises, the shock in demand for work is likely to translate into significant adjustments in falling wages and working hours. Although self-employment does not normally respond to economic crises, it does act as a “standard” option for income survival or maintenance - usually in the informal economy. For this reason, informal employment tends to increase during crises. However, current limitations on the movement of people and goods can restrict this type of mechanism.

The decline in economic activity and restrictions on people's movements are having an impact on industries and services. The latest data shows that the total added value of industrial companies in China decreased by 13.5% during the first two months of 2020. Global and regional supply chains have been disrupted. The service, tourism, travel and retail sectors are especially vulnerable. An initial assessment by the World Trade and Tourism Council predicts a decline in international supplies of up to 25% in 2020, which would put thousands of companies and millions of jobs at risk.

Who is particularly vulnerable?

Epidemics and economic crises can have a disproportionate impact on certain segments of the population, which can trigger worsening inequality. Based on past experience and current information about the COVID-19 pandemic and information from previous crises, several groups can be identified:

·         Those with poor health conditions and the elderly are at greater risk of developing serious health problems.

·         Young people, who already face higher rates of unemployment and underemployment, are more vulnerable to falling demand for work, as witnessed during the global financial crisis.

·         Older workers may also experience economic vulnerabilities. After the MERS outbreak, older workers were found to be more likely than preschoolers to experience higher rates of unemployment and underemployment, as well as decreased working hours.

·         Women are represented in the most affected sectors (such as services) or in occupations that are on the front lines of dealing with the pandemic (for example, nurses). It is estimated that 58.6% of employed women work in the service sector worldwide, compared with 45.4% of men. Women also have less access to social protection and bear a disproportionate burden on the care economy, in the event of school closings or care services.

·         Unprotected workers, including self-employed, casual and precarious workers, are likely to be disproportionately affected by the virus, as they do not have access to paid or sick leave mechanisms and are less protected by conventional social protection mechanisms and other forms of wage smoothing.

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