Recently our economy has been shaken with a fatal disease which is expanding with a progressive rate every coming day. COVID-19, the disease caused by the novel Coronavirus, arose in the Wuhan region of China’s Hubei province late last year. It was reported to the World Health Organization (WHO) on December 31st with scientists relating the disease to SARS (Severe Acute Respiratory Syndrome) and MERS(Middle East Respiratory Syndrome). The disease has killed more than 47,000 people and more than 127,000 are infected around the world.
In this severe pandemic, infrastructure can be disrupted at a national level, such as healthcare, transportation, commerce, and utilities. This is due partly to risk mitigation measures but also potentially higher rates of patients on sick leave, employees taking care of children or other family members, or general population anxiety about gathering in public places.
Researchers and Economists around the globe are still delving into the gravity of the effects this outbreak will have on the economy upfront. Broadly, if we talk in terms of the aggregate demand and the aggregate supply, in some cases the economy is plunked with a Demand Shock or a Supply Shock. A demand shock is a sudden surprise event that deteriorates or increases demands and causes the ultimate disruption of market prices. The result is a recession in which output falls beneath its potential, though the recessions caused can be eventually remedied by the timely monetary stimulus(lower interests) or fiscal stimulus(tax cuts). A supply shock is an event that suddenly increases or decreases the supply of a commodity. The most severe kind of recession happens when a country is synchronously effected by a quantitative supply shock and a demand shock and this is what we have with the coronavirus. The supply of multitudinous commodities has been affected by turbulence in the global market as some of the people are sick and for the others, it is important to stay tentative nowadays. Weighting our scenarios by probability, we forecast an average negative 0.2% long-term impact on world GDP due to the COVID-19 pandemic. To be sure, we expect a much larger impact in the short run, with an average negative 1.5% impact on 2020 world GDP across our scenarios. Here are some steps to be taken by the policymakers to minimize its effects globally,
- The first priority is clearly to keep people as healthy and as safe as possible. Countries can help by spending more to boost their health systems, including personal protective equipment, screening, diagnostic tests, and additional hospital beds.
- The international community must help countries with limited health capacity avert a humanitarian disaster. The IMF stands ready to support vulnerable countries with different lending facilities, including rapid-disbursing emergency financing.
- Central banks should be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small- and medium-sized enterprises, which may be less prepared to withstand a sharp disruption.
- Do keep stimulus targeted on those who need help the most- Unemployed workers, small businesses, etc.