Introduction
The COVID-19 pandemic and its resulting lockdown measures have had significant macroeconomic impacts, affecting billions of people worldwide. Its impacts have been spread across all markets, resulting in the most significant global crises in the last century. Alon et al. (2022) observe that emerging markets have experienced a decline in GDP per capita of 6.7%, compared to 2.4% in developed countries and 3.6% in developing countries. The pandemic has also triggered an increase in global poverty for the first time in a generation.
Furthermore, the pandemic has resulted in the loss of lives and livelihoods for many breadwinners in society. According to The World Bank (2022), unemployment was 70% times higher for employees who had only completed secondary education during the early days of the pandemic. The macroeconomic impacts of the pandemic have been spread across different sectors and have affected all populations, particularly the youth, women, and children. All macroeconomic aspects of the global economy, including primary, secondary, and tertiary sectors, have been impacted by the COVID-19 pandemic, prompting governments to adopt fiscal and monetary measures to mitigate its effects.
COVID-19 Macro-Economic Impacts on Specific Sectors
Primary Sector
Agriculture
People typically overreact to pandemics, and homo economicus decision makers have adopted extreme measures to curb the spread of the virus that has affected the primary sector of the economy. The primary sector of the economy is mainly involved in converting raw materials into finished products. Most primary sector activities are agriculturally based, including crop production, livestock farming, fishing, and forestry.
The COVID-19 pandemic has negatively impacted agricultural activities, prompting reforms in regions such as India (Choudhury, 2020). First, the lockdown measures have led to a shutdown of most hotels, thereby reducing demand for agricultural products. The impact of the reduction in demand for food products has been felt more acutely in developing countries, where agriculture accounts for 15% of the total GDP, compared to developed countries, where agriculture contributes only 1% (The World Bank, 2020). Due to the globalization of the world economy, the reduction in demand for hotel products in North American countries has been offset by a reduction in agricultural food prices in sub-Saharan Africa, demonstrating the sector’s elasticity. Figure 1 illustrates the variation in elasticity of agricultural products along a demand curve.
Many governments have initiated stay-at-home measures to prevent interaction between different people to curb the spread of the COVID-19 pandemic. The restrictions have a significant impact on the agricultural workforce in different places. For instance, in an attempt to mitigate the economic impacts of the pandemic, many central governments have been compelled to inject more money into the economy. This release has led to inflation, resulting in a devalued currency.
Agricultural products that are not elastic to foreign exchange rates have remained constant in price, thereby negatively affecting farmers. In addition to inflation and foreign exchange policies, lockdown measures have negatively impacted agriculture, resulting in a shortage of workers available to work on farms. For instance, there has been a shortage in labor supply in China due to farmers being instructed only to shop for essentials, but not to gather on their farms. Interruptions in the agricultural food supply have a short-term impact on food supply and a long-run negative impact on the economies that rely on the sector.
Mineral Mining
The COVID-19 pandemic caused shocks in the supply and demand for major minerals, resulting in price reductions for most minerals. The pandemic has led to a decline in income levels for most people. This shock has resulted in most people being unable to purchase jewelry products, which form a significant part of the mining market.
Between March and April 2020, the prices of most mined metals, particularly copper, aluminum, and diamond, significantly declined (Laing, 2020). The decline was attributed to the fall in interest rates of most publicly traded companies that rely on mineral resources. Major macroeconomic factors cited as contributing to the decline in mineral prices include reduced industrial production resulting from the recession and slow GDP growth. A slowdown in international trade, which limits retail sales for mineral companies, has also resulted in a decline in the mineral sector.
Crude Oil
The spread of the COVID-19 pandemic and its consequences have had a significant global impact, particularly on the crude oil industry. The self-isolation measures have reduced crude oil prices, as people are unable to travel. Low oil prices hurt the economies of oil-producing countries (J.P. Morgan, 2022). However, for non-OPEC countries, the low oil prices could offer a platform for recovery.
Nevertheless, not all mining industries have been negatively impacted by the pandemic. Gold has witnessed a sharp increase in valuation since the pandemic was announced (Laing, 2019). This decision was due to people fearing hyperinflation and believing that holding money in gold would be a safer option. The share prices of some gold companies, particularly Ashanti Gold, based in Ghana, have seen a sharp increase in their share valuations. Figure 2 provides an overview of the relationship between the drop in oil prices and the decrease in demand.
Secondary Sector: Manufacturing
The economy’s secondary sector is concerned with converting raw materials into finished goods. It comprises manufacturing, which is the conversion of materials into finished products using various factors of production, such as labor and capital. The construction industry, which is concerned with building, repairing, and renovating physical assets, also falls under this secondary sector. This sector contributed over 10% of the global GDP and was the least affected by the COVID-19 pandemic (The World Bank, 2022).
Nonetheless, the sudden stop of economic activities has caused unprecedented shocks in the manufacturing, construction, and utilities industries. For instance, grants that governments offered to aid the industry have been channeled to help manage the crises in many governments. The manufacturing sector is a labor-intensive industry that has also been significantly impacted by movement restrictions aimed at slowing the spread of the virus.
The COVID-19 pandemic has caused shocks to the market equilibrium of the manufacturing sector, resulting in a shift in demand. In the first quarter of 2020, global manufacturing capacity was reduced by 6% and further decreased by 11% in the second quarter (The World Bank, 2022). Government measures have led to a decrease in the number of manufacturing industry workers staying home. The demand for some items in the manufacturing sector has increased, while in other industries, it has reduced.
Conversely, the supply has significantly decreased due to reduced production factors, including raw materials and labor. When the supply of commodities decreases, and demand remains constant, the equilibrium shifts, and prices increase. Therefore, the COVID-19 pandemic has resulted in inflation contributed by the limited supply of goods from the manufacturing sector. This type of inflation is known as demand-pull inflation among economists and is characterized by a higher increase in aggregate demand than in aggregate supply.
Tertiary Sector
Education
The tertiary sector is concerned with providing services, also referred to as intangible goods. The majority of industries in the service sector have been negatively affected by the COVID-19 pandemic. All levels of education have been negatively impacted by the pandemic and the economic policies implemented to mitigate its effects.
Schools, by their very nature, are labor-intensive and require workers to commute from their place of residence to the classes. Likewise, students typically reside in different locations and interact with one another. This direct contract has had to be limited, forcing the governments to trade off education for students’ health and safety. The latter has been preferred in most countries, resulting in a flattened COVID-19 spread curve but various negative macroeconomic impacts.
Among the disadvantages of this temporary school closure is unemployment for teachers and other support staff who rely on the schools. The closure has also reduced national incomes since most educational facilities are government-owned and contribute significantly to the government’s revenue. The COVID-19 pandemic has also brought a framing effect on schools, notably higher learning institutions, making stakeholders aware that they can successfully implement remote learning. Ceteris paribus, schools will likely keep this trait of distance learning in the future. This could result in a macro-economic impact of reduced aggregate employment opportunities in the education sector and increased opportunities in the IT sector.
Finance
Another tertiary industry that the COVID-19 pandemic has largely impacted is the industry of finance. The finance sector’s role is to provide intermediary services that facilitate the transfer and allocation of financial resources within an economy. The major financial sectors of today include commercial banks, investment institutions, governmental financial institutions, exchange houses, and insurance industries. The pandemic has resulted in a temporary shock to the financial sector, as it has impacted the economy.
Various macroeconomic policies and measures have been adopted in different parts of the world to mitigate the shock in the financial sector. The European Central Bank (ECB) has announced a 750 billion Euros asset purchase program to strengthen the Euro (Nicola et al., 2020). Similarly, the current UK prime minister announced a £330bn package to guarantee loans, keeping the financial sector more stable (Nicola et al., 2020). This policy is not the only macroeconomic policy adopted by the UK to cushion the country against the pandemic.
The US has also quickly formulated policies to cushion the sector against a potential downfall. The Federal Reserve has initiated a fiscal policy of reducing the interest rates by 0.5% (Nicola et al., 2020). The Federal Reserve has also announced a plan to support the industry by purchasing bonds. The Trump administration seeks to ensure continuous money circulation by offering a 300-billion-dollar lending program (Nicola et al., 2020). Macroeconomic policies to cushion the financial sectors have not been limited only to Western countries.
China and Japan have initiated plans to maintain liquidity in their economy by giving billions of dollars to their respective banks. Other policies adopted by various governments to curb the shock include a job retention scheme, deferring VAT, offering small business grants, and formulating a new lending facility (Nicola et al., 2020). Although these policies have worked to varying degrees of success, people, especially in opposition governments, have quickly judged and criticized the macroeconomic policies adopted to cushion the sector.
Tourism and Hospitality
The hardest hit industry by the COVID-19 pandemic has arguably been the tourism and hospitality sector. Almost all governments worldwide have set measures to limit social interactions associated with the hotel and tourism industries. This has put 50 million jobs associated with the sector at risk, a major macroeconomic issue (Nicola et al., 2020).
In response to this problem, the EU has formulated fiscal policies to cushion the deficits and overcome liquidity challenges in the tourism and hospitality sector. The European Unemployment Reinsurance Scheme has been set up to cover all the workers who lose their jobs in the hospitality and other sectors. The challenge has also been severe in Eastern countries, especially China and Vietnam. China has lost over 600,000 tourists, while Vietnam has witnessed a 5 billion US dollar reduction in national income from the sector (Nicola et al., 2020). The impact has also been significant in other service industries such as aviation, real estate, housing, sports, IT, and food.
Macro-Economic Policies Initiated to Curb COVID-19
Fiscal Policies
COVID-19 has made many governments anchor their counterparts, resulting in similar financial and fiscal policies. Many governments across the globe have opted to use their contingency funds to establish hospitals, build laboratories, and purchase personal protection equipment. The government of the UK also sought to ensure the stability of the health sector by issuing additional funding to the NHS (The World Bank, 2020). Most nations have also had to grapple with liquidity pressures, causing federal banks in many nations to offer loans and grants. For instance, many governments have had to lower the federal reserve ratio to increase the money supply within the economy.
A notable example is the Bank of Algeria, which has lowered its reserve requirement ratio from 10% to 8% l. The increase in money supply within economies has led to inflation of most currencies. Hardly countries hit by the pandemic have had lower exports than imports, leading to a balance of payment deficit. Governments have adopted various methods to correct COVID-19-related deficits. Some common strategies that have been adopted include reducing interest rates, controlling inflation, offering export promotions, and mitigating imports.
Monetary and Macro-Financial Policies
Monetary and macro-financial policies seek to ensure price stability, correct unemployment, and ensure sustainable economic growth in an economy. In the wake of the COVID-19 pandemic, the US government has introduced a commercial paper facility to ensure the economy’s stability in the short term (The World Bank, 2020). The federal government has also lowered the cost of lending to give investors easy access to capital. The pandemic forced the government of the UK to reduce the bank rate to 0.1 % to maintain the country’s price stability (The World Bank, 2020). Due to the circular flow of income, the money given to one sector of the economy has been circulated to other sectors, reducing the financial burdens of the pandemic.
Conclusion
The COVID-19 pandemic has impacted all macroeconomic facets of the global economy, spanning the primary, secondary, and tertiary sectors, prompting governments to implement fiscal and monetary policies to mitigate its effects. Restrictions have lowered the labor supply in the agricultural and mining sectors, causing food shortages and a lower supply of minerals. Similarly, the manufacturing and construction sectors have witnessed a significant decline caused by the measures taken to curb the decline. However, the service sector has been negatively affected, particularly the hotel and hospitality market.
Fiscal and monetary policies adopted by most governments to reduce inflation and unemployment and to boost national income and international trade have been beneficial with varying degrees of success. The biggest lesson that governments and economists have learned from the pandemic is that macroeconomic policies should always be reformed according to the needs of society.
References
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