Economic impact of the COVID-19 pandemic
As some countries are beginning to lift their lockdowns and some resemblance of normality begins to return for some the health crises has turned into a financial one. The lockdown ground economic activity to a halt, companies have collapsed or are on the verge of doing so and GDP has fallen in many countries by astonishing numbers.
It’s no secret that the virus has had major effects in the economies globally, starting in China there was a substantive supply side shock as the commons library briefing says “As the outbreak spread across the globe, the scope for economic damage widened considerably”. Global supply chains ground to a halt as parts became hard to source and factories had to go into lockdown, workers started taking time off due to having the virus or to self isolating. Schools closed suddenly forcing parents to withdraw from work to provide child care and finally non essential firms were shut down substantially restricting economic activity from a supply side.
From the demand side the picture doesn’t get much better as countries went into lockdown. People just stopped spending time due to governments heavily restricting leaving home for essential reasons or simply due to personal safety. The most recent set of forecasts from the organisation of economic cooperation and development model for a single and double hit when a second lockdown is imposed, and both scenarios show just how stark the picture is with the UK set to be hit the hardest out of all the G7 countries. In a single hit scenario japan’s economy is said to shrink by 6%, Germany by 6.6, the US by 7.3%,the euro zone 9.1%, Italy 11.3%, France 11.4%, and the UK at an 11.5% hit. And this isn’t to say the recovery is on the cards, but the OECD also predicts a strong recovery in 2021. Nonetheless warning that most advanced economies will still be smaller by the end of next year than they were before the pandemic. But even that’s just a forecast. The resolution foundation in its macroeconomic policy outlook for the second quarter of this year temper the strength of any recovery given the role of savings uncertainty has undoubtedly increased families and business are likely to respond to that by increasing savings, broad money holdings which include bank accounts and other liquid assets as well as cash itself. This level of saving increased sharply to nearly $80 billion.