Understanding Coronanomics: The Economic Implications of the Covid-19 Pandemic

Abstract

The globalization of the COVID-19 pandemic and its economic impacts is set to run havoc across economies in the world, throwing many into recession and possibly depression. The aim of this paper is to provide an overall understanding of the likely macroeconomic shocks of the pandemic on a diverse range of economic activities and indicators across economies. The paper covers implications to demand, supply, supply chain, trade, investment, price level, exchange rates, and financial stability and risk, growth, and international cooperation. The paper combines a unique theoretical impact mapping and supplements it with emerging evidence to develop the impacts' likely progression and span. Furthermore, the paper uses a standard Aggregate Demand and Aggregate Supply (AD-AS) model of macroeconomics to explain the likely growth effects arising out of essential and non-essential goods markets and outlines necessary features policy responses should consider. Data and information to analyze the impacts are assimilated from different sources, including news and media publications, the OECD, and IHS Markit-CIPS. Assessments of this paper suggest that many economies are about to see a period of stagflation driven by demand and supply slump, increased unemployment, deflationary pressure, reduced trade flows, and disruptions in the supply chain, which may result in a recessionary period if not acted fast with innovative policy responses. As almost all economies are badly affected, a global growth recession is imminent if the pandemic continues. However, based on past experience of pandemics and epidemics and the current evidence, a U-shaped recovery pattern is the most optimistic possibility for most countries and the world economy. The paper could help policy-makers in understanding the pandemic's broad-based impacts and policy needs to fight the imminent economic damage. Particularly, assessments with respect to the essential and non-essential goods markets could provide useful insights in designing appropriate policy responses to fight the pandemic. All considered, the paper calls for a collective and globalized response alongside standalone policy responses undertaken by individual economies. The assessments are broadly in line with the limited literature available on macroeconomic implications of CVODI-19 and could serve as a basis for advanced analysis on COVID-19 economics.