The effects of the COVID-19 pandemic could drive the world into an economic depression. The coronavirus pandemic affected business and caused the stock markets to collapse. Forcing Central banks to take emergency measures. Among the measures cut in interest rates and loan guarantees. All to ensure investor confidence and weaken.
The most exposed to the fallout are businesses and workers in transport, the energy industry, and hospitality. Congress is voting on a bailout bill proposed by Donald Trump. The objective is to invest the US $1 trillion in the economy and, with that, avoid the mass layoffs of sectors such as aviation, hospitality, and gastronomy. The UK government also acted by announcing that it would pay 80% of the salary it had at risk. Read more on this below!
The relationship between the COVID-19 and an economic depression
The reaction to the COVID-19 As a consequence of the outbreak of COVID-19, an imbalance between supply and demand was created. The pandemics prove to be more damaging than other events that have led to other financial depression.
This is because people should stay at home longer to avoid contamination. As a result, the demand for goods and services is limited.
On February 18, it registered the biggest increase in history. This is due to the free fall of American shares, reducing their value by a third of the previous value. The same happened in Europe and Asia. Hong Kong’s Hang Seng Index fell 18%, while Europe’s Stoxx 600 lost a third of its value.
The economic scenario is the worst ever. According to Bank of America, the loss has been $27 trillion since the end of January. Last week, 2.25 million Americans applied for unemployment insurance, according to Goldman Sachs.
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What are Central banks doing to offset the impact of COVID-19?
Morgan Stanley says that “spending commitments from the United States, Europe, Japan, the United Kingdom and China add up to at least $1.7 trillion in the form of credit guarantees.“
The COVID-19 pandemic could spark a repeat of the Great Depression that began in 1929 and lasted for years. Economists are already reflecting on the impacts of the pandemic worldwide. The whole global scenario that we know will undergo changes. The benefits from capitalism, as well as democracy and even globalization.
