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What Happens To the Economy When A Pandemic Strikes

by Kim GreeneJune 25, 2021
What Happens To the Economy When A Pandemic Strikes

When a pandemic strikes, the first and foremost concern is from the medical perspective- to safeguard human lives- as it should be. However, that also means quarantining and locking down risk areas if not all countries. While this works to slow down the pandemic, it also works against the economy, directly impacting our livelihoods. 

The arrival of a pandemic causes an inevitable negative impact on the national and global economy. It results in businesses shutting down, leading to job losses, inflation and global recession.

We talked to experts in the business and finance world to shed some well-deserved light on this critical global concern, in view of the recent COVID-19 Pandemic.

Rise In Inflation

“Something that is happening due to the pandemic is a rise in inflation. The CPI and PPI reported last month that inflation is occurring in our economy right now. And this is a direct result of the stimulator, and the federal reserve's quantitative easing. This is the reason why commodity prices are inflating right now (lumbar, copper, steel), and we can anticipate consumer goods to increase as well based on the data from the CPI and PPI.”

Jeff Neal, CFO Critter Depot

The Economy is Connected

“When millions of people in the United States and throughout the world went into virtual lockdown, the economy was bound to suffer. Certain industries have undoubtedly taken the worst of the blow. Shops and restaurants either closed their doors entirely or opened with limited seating space and poor demand for in-store dining. Non-essential travel ceased, resulting in enormous income losses for airlines and cruise ship operators, as well as smaller businesses that rely on tourism. Those working in seemingly unrelated fields, on the other hand, experienced the social distancing's secondary effects. As purchasing slowed and demand for non-essential goods, such as new clothes, fell, manufacturers, particularly those outside the medical area, experienced fewer orders.”

Tony Kelly, CEO at CameraGroove

The Economic Impact On Poorer Countries Is Significant

“More than 90 poor countries have already applied for emergency cash and financial support from the International Monetary Fund (IMF). So far, 24 of the IMF's low-income member nations have received urgent debt relief. The IMF, on the other hand, is advocating for a temporary suspension of loan payments to banks for the world's poorest countries. When we look at Sub-Saharan African nations as an example of how fiscal inflexibility is wreaking havoc on their economy as a result of closed borders and disrupted supply chains, we see lower commodity revenues, a drop in tourism, and a lack of foreign investment. When demand drops as it is right now, as it is with tourism, for example, economies are driven to their knees.”

Chana Charach, CFO at Income.ca

Increased Unemployment Is One Of The Economic Consequences Of A Pandemic

“Numerous experts have warned that global lockdown measures will exacerbate job losses- something that is already evident in the unemployment rates of various economies. Over the first few weeks since the lockdown was implemented, the United States, the world's largest economy, has lost more than 26 million jobs. According to the Bureau of Labor Statistics, the country's jobless rate of 4.4 percent in March was the highest since August 2017. The United States is not alone in its struggle with rising unemployment. Australia and South Korea both saw an increase in unemployment, with some experts warning that the situation might deteriorate further. Additionally, millions of people have been placed on government-supported job retention programs while key sectors of the economy, including tourism and hospitality, have come to a standstill. In many countries, the quantity of new work prospects remains quite low. Because of this, businesses wouldn’t be able to operate properly which would result in low income and will eventually affect the economy on a much larger scale.”

Jennifer Harder, Founder & CEO of Jennifer Harder Mortgage Brokers

There Appears to be a Silver Lining- Rise In Online Commerce

“When the pandemic started, our team was worrisome of how it will impact our business. But we soon found out that during the pandemic, the economy seemed to shift to online commerce compared to traditional retail shopping. During the first few months of the COVID pandemic we saw our online traffic increase by nearly 50% over night. Our overall business has grown tremendously during the pandemic and as the economy as a whole took a huge hit, we noticed that many online businesses grew at tremendous rates.”

Jared Garner, CEO of Kind Seeds

The Ripple Effect

“A ripple effect on the economy during a pandemic is inevitable. When a pandemic strikes, various industries are affected directly or indirectly, leading to the closure of businesses and loss of jobs. For example, manufacturers from outside the medical field have experienced a drop in demand for non-essential goods. In contrast, money lenders like banks had to absorb the loss of defaulted loans. Trade among countries is affected, leading to a shrink in the world economy. Among others, the effects of a pandemic result in a drop in equity markets value and an increase in volatility.” says Harriet Chan, Co-founder & Marketing Director of  CocoFinder.

Chan explains how extensively pandemics can hit the global economy when the world has no choice but to impose restrictions; “A pandemic like that of the Coronavirus has also led to a slump in oil prices. Pandemics have a direct impact on shipping and supply chains which account for 90 percent of global trade. A disruption in supply chains leads to less production, and companies experience financial losses. A global pandemic like Covid-19 led to the imposing of movement restrictions, affecting the traveling and hospitality sectors. Waterways were also affected when people got quarantined on offshore cruise ships. That means less travel which leads to less tourism, a significant revenue source for most countries globally, leading to inflation. With an economic slump, prices of various commodities rise as well as accommodation expenses. As a result, house rents may not spike for some, but the effects are felt indirectly with a high cost of living.”

While the COVID-19 pandemic appears to be receding around the global, it is crucial to understand this was not the first pandemic and unfortunately, it probably won’t be the last either. While we may not be able to predict or prevent the next pandemic, what we can do is prepare ourselves for tackling it financially so the world does not need to witness another global recession or mass layoffs.

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