The Impact of COVID-19 on the World Economy

Abstract

Purpose – The coronavirus, which appeared in Wuhan, China in late 2019, has had immense ramifications on the global community. This paper undertakes to identify the economic impact of COVID-19, which has spread as a global pandemic, on the global economy and international trade. Design/Methodology/Approach – Using a global, multisector, computable-general-equilibrium model, this paper attempts to assess the potential economic impacts of COVID-19. The baseline scenario was set up using the World Bank’s macroeconomic data, such as real GDP, population, labor, and capital from 2015 to 2019, to calculate future estimates. Policy scenarios were established by (1) drops in employment rate (0.4~8.8%) of the analyzed countries, (2) a 5% increase in trade costs, (3) an 8.3% decrease in income reduction, and (4) lastly, a 50% fall of income in affected services industries. Findings – Results show that the GDP of all countries, including the United States and China, contracted, demonstrating that COVID-19 is not only limited to a specific country but also negatively affects the economic growth of all countries. Regarding international trade, exports and imports of all countries have declined due to the increase in trade costs resulting from COVID-19. However, in terms of the trade balance, each country exhibits slightly different patterns. Some countries, such as the United States, ran a trade surplus and others recorded a trade deficit. Although aggregate exports and imports around the world declined, the reason some countries recorded a trade surplus was that imports declined more than exports did, so it would be reasonable to view it as a ‘trade surplus in an economic recession’. Research Implications – Analytical results imply that the COVID-19 pandemic is not limited to a specific region and has a negative impact on countries around the world, signifying that the only way to lessen economic damage is to surmount COVID-19 as soon as possible.