What are the impacts of Covid-19 on global economies?

COVID-19 is a recently discovered coronavirus-caused infectious disease. The majority of the world’s population is aware of Covid-19’s detrimental impact on human health, but in this research paper, we would like to write about its huge effect on the economy. Particularly, the paper analyzes coronavirus’s influence on China’s economy. Generally, China is one of the world’s upper-middle-income countries and it takes second place among the world’s largest economies. The following paragraphs will explain and analyze how coronavirus changed China’s economy in more detail by mainly evaluating its effects on GDP components, productivity, open-economy models, unemployment, monetary system, and IS-LM and AD curves. To begin with, China’s GDP decreased by 6. 8% (BBC) for the first three months of 2020 due to coronavirus. As we know, GDP consists of consumption, investment, government spending, and net export, so every change in one of these components will affect GDP in a positive or negative way. For example, because of coronavirus and lockdown regime people are not allowed to go out and meet with all of their demands, such as going to restaurants, and entertainment places and so on. Thus, the consumption of such goods and services went down. However, the demand for foods, medicines, and medical services increased significantly, which lead consumption components to increase for those goods and services. For example, the epidemic decreases 5G mobile phones and then affects the whole mobile phone industry chain. (Control Engineering). Already the car purchases, holiday tickets decreased. However, in provinces, such as Zheijang, approximately 95% of the coronavirus patients increased consumption for treatments with traditional medicines (CNN, March 2020). Consequently, Covid-19 also has a negative impact on unemployment for people especially, those who works in specific industries, such as restaurants, hotels, and tourism. According to the BBC (17 April 2020), the unemployment rate in this lockdown period hits 6, 2% in February and 5, 9% in March in China. For example, about 50 million service workers and 20 million employees working at construction and industries became unemployed near to the end of the March (Los Angeles Times). There can be several reasons leading to unemployment and one of them is frictional unemployment, which occurs as a result of consumers’ decisions to change their preferences for one brand to other ones. Particularly, in this quarantine regime, as we mentioned before, people buy more of foods and medicines, but less clothes and cosmetics or entertaining services. So, companies, which are not working in lockdown, reduce their production and decrease the number of workers. This might occur as a result of the imbalance between income and expenditure in the economy of these companies. When less output is produced, income is decreasing and it increases the cost for the employers as now it becomes hard for them to pay worker’s wages. Therefore, those unemployed people can need to find jobs in other temporary workplaces according to their tastes and skills and it will take more time especially in this quarantine as many fields stopped to serve. However, we found that, in China, in some small companies it is possible to prevent unemployment by trying to keep paying their workers (china-briefing. com). For example, restaurants informed the public and government that it became hard for them to pay the wages of 22000 workers. China’s government and banking sector have taken some steps to lend $200 billion into businesses, and especially for the smaller ones. One of the possible policies that the government can implement is to increase wages to promote workers, such as doctors and sellers of pharmacy and markets to encourage them to work efficiently because those people also need to be protected by a virus, which means that they have less incentive to work. This action is related to the theory of efficiency wages. Although unemployment rate increases for each month as the virus spread, cyclical unemployment doesn’t expect to increase per year, because the natural unemployment rate is expected to be 3. 8% from 2018 to 2024 (Statista. com). As an additional view, it is worth mentioning that each worker has a benefit on productivity because every employee can apply different skills and knowledge. But considering the quarantine regime, some companies and firms are not able to work, and also an increase in unemployment is reported. This means that advantageous to productivity decreases, which makes production to cut back.