The economic aftermath of Covid-19 health crisis
While we all agree that the health crisis comes first and its containment is the world's number one priority, a major question which arises is about the economy. How is the economy going to be affected? Will it boom or bust in the next few years?
Even before the lockdown measures were imposed, the EU GDP for the first quarter of 2020 was decreased by 3.3% when compared to last year’s same period. This is a clear indication of the start of an economic recession whose end is unknown. How do the states and the central banks react to this uncertain climate?
Usually, the central banks would decrease their interest rates to allow for the money to move in the economy. However, the interest rates were already at a historic low because of the economic crisis of 2008. Thus, the states and the central banks adopted another measure to increase the flow of cash into the economies called Quantitative Easing (QE). QE is simply when new money is created to buy government bonds by the central banks. QE is an inflationary force which allows money to be injected to an economy and is also favoured by the governments because they see their huge debt to be eroded by this inflation. For example, just recently the Bank of England pumped the UK economy with £100bn for the Coronavirus aid recovery.
A significant indicator about how the market and the recovery from Covid-19 are moving can be the unemployment rate in the US. The US can be a key indicator behind global exports and imports. In April 2020 the unemployment rate in the US hit an all-time high of 14.7% which is translated into direct and indirect impacts on the imports and exports of the US. Consequently, this will have a snowball effect on all the economies of the world which trade with the US leading to unforeseen results.
Concluding, if the measures taken by the governments to inject money into the economies and save millions of jobs are successful then the future might look more optimistic. However, there is always the danger that these measures are inadequate, leading to disastrous consequences. A closer look to all these matters in the future will lead to a safer estimate as to where the economies are moving.