After March 11, 2020, when the World Health Organization (WHO) declared officially a pandemic, the highest level of a health emergency. The countries closed their borders for arrivals, ordered businesses and offices to close, and instructed their population to self-quarantine. The global outbreak affected national and international activities including financial markets, global trade (import restrictions and cancellation of export orders), food, medical supplies, tourism, electronics, and a range of social activities which in turn restricted mobility and had a noticeable impact on global economic growth.
Countries all over the world experienced the economic impact of coronavirus disease. This not only hit domestic demand and supply but also lowered global trade. Combined and determined measures were taken to provide support to workers and households, provision of unemployment benefits, to prevent business bankruptcies, and substantial job losses. This time demanded maximum financial and scientific support from the world’s leading economies for the most vulnerable and poorest countries.
Apart from the human consequences of the Covid-19 pandemic, from the deaths of family and friends, mental trauma and physical effects of infection, and the fear faced by almost everyone, the outbreak also caused global economic costs. The crisis had been transformed into an economic shock, affecting not only demand (consumption and investment), but also supply (production of goods and services).
In the short run, there was a sharp reduction in consumer demand in most developing countries. Demand fell due to the factors such as lower domestic demand for non-essential goods; cancellation or postponements of export orders; reduction in tourism; both foreign and local, canceling trips, and a drop in the stock market. All these factors collectively contributed to eroding peoples’ willingness to spend. For countries with heavy dependence on remittances, such as India, Pakistan, Nepal, Philippines, Tajikistan, and Kyrgyzstan substantially faced effects on their economies due to massive job losses and delayed salary payments to migrant workers.
As factory output fell because workers were instructed to follow social distancing measures to reduce the spread of the virus. The drop-in economic activities have had repercussions as firms faced delays in supplies of intermediate and finished goods and experienced a reduction in business profits. The disruption in the manufacturing and services sector and reduction in fuel prices further increased the economic impacts of a pandemic. This disturbed the financial markets; toughen liquidity conditions in many countries, created unmatched capital outflow from developing countries, put pressure on foreign exchange markets, and experiencing dollar shortages in countries. Depreciation of local currency restricted the government’s ability to provide the required level of fiscal stimulus to stabilize the economy and tackle human and health crises.
Lower overall economic activity was likely to have dramatic effects on small and medium enterprises (SMEs). Following travel restrictions, border closures, and quarantine measures, a large number of workers could not carry out their jobs, which had observable effects on income, especially for daily wage earners, self-employed, or working in the informal sector. It had become clear that the outbreak negatively impacted global economic growth. The cumulative economic impact of Covid-19 was expected to be very large, suggesting that the global economy was moving towards recession, its economic impact was comparable to the 2008-2009 recession due to financial crises, in which GDP declined by more than 2% worldwide.
Uncertainty was common in economic policymaking due to the pandemic. In the process of designing a policy, policymakers were supposed to consider how unpredicted events are likely to impact the future, in order to undertake an effective policy design. Considering the scenario of Covid-19, there was a need to estimate the magnitude, nature, and likelihood of risk to human health, and global economic cost.
All the above-mentioned scenarios during Covid-19 had their impacts which were pretty much conquered by implementing various policies, rules, and regulations but in the middle of recovering from Covid-19 impacts world faced global political instability which caused a direct impact on the oil market.
The Ukraine and Russia war in the year 2022 led to a decline in the participation of oil products supply in the international oil market. It also caused a gap between the demand and supply of oil products and increased oil prices globally. Most economists normally differentiate demand-supply-driven oil shocks to assess the impacts of oil prices on the world economy. The global economy is not directly affected by independent demand-driven shocks because these shocks occur due to global demand.
But on the other hand, the global economy can be affected by independent supply-driven oil shocks. There are several reasons why they might not — in good part because the financial propagation effects of the collapse in oil prices have caused markets for equities, bonds, and non-oil commodities to tumble.
The pandemic and continuing Russia-Ukraine War not only affected the economy of developing countries but also created a disaster in the global economy. These two disasters have shaken the global economy as Kristalina Georgieva Managing Director of IMF said in a recent World Bank/IMF meeting:
“In less than three (3) years, the world has lived through shock, aftershock, aftershock. First, the Covid pandemic. Then Russia’s invasion of Ukraine and the ensuing cost-of-living crisis”
If we look into the inflation rates of various countries it can be observed that it has increased drastically in the last 3 years. For example, the inflation rate (CPI) of the UK in September 2022 was 10.1 which is the highest in the last four decades.
Such as the US inflation rate was 9.1 in June 2022 which was the highest after 41 years. Furthermore, the increasing trend of interest rates in the US hits emerging economies badly due to currency flights out to the US and depreciates the local currencies across the globe but not in the Russian ruble.
The dollar is the more attractive currency for investors to invest in because it is the most efficient and exchangeable currency in the world. However, with the increase in the interest rate in the US from 0.08% to 3.08% in the last 9 months captured the investment in the US market and became the main reason for decreasing the investments in other markets.
Above mentioned issues clearly depict how the Covid-19 pandemic and Russian-Ukraine War are badly affecting not only developing countries but the rest of the world. People from almost 100 countries all over the world hit streets protesting against food and energy inflation reported by BBC on October 17, 2022, which is a democratic act by any citizen to demonstrate the current economic difficulties. The person who has a wise opinion on the current economic situation of the world will accept the fact and figures but on the other hand, only the ignoramus ones would say these events have no impact on economic situations.