I’m sure we’ve all heard of the Covid-19 (Covid) pandemic by now. Even more than 3 years onwards from it’s origination in Wuhan, China, RAT and PCR tests are being conducted on a daily basis, drastic lockdown and social distancing regulations are being enforced in many regions across the world, and many of the world’s most advanced nations are still seeing fluctuations in daily case. Such implications undoubtedly depict the various ongoing social impacts that the pandemic has inflicted upon us, the economical consequences of the pandemic also cannot be overlooked. However, I think it would be fair to say that, in its current stage in many parts of the world, Covid cases have plummeted from their peak, and have remained in this rather stable (slightly declining) position for an extended period of time. It is for this reason that I believe that an evaluation of the impacts of this pandemic can be assessed with a high degree of accuracy. In the first of this 3 part series, I will examine the economical impact of the pandemic, whether that be for trade, economic growth & development or other types of investment. I will begin domestically, for Australia, then move on to some of the more global impacts, and answer the hows and whys to every fact I bring. 

For any reader who may not be too familiar with Australia, it’s quite a large country (by size) with a relatively smaller population (25.98 million as of June 2022 (ABS)). Economically, while it only makes up 2% of the GWP (gross world product), imports consist of almost a fifth of GDP, and almost a quarter of what is produced goes towards exports. Point being, Australia doesn’t have a huge impact on the global scale, but the converse certainly cannot be said. Speaking of GDP, Australia’s GDP has been nothing but a smooth curve since the start of the pandemic, with 2 distinct “valleys” in March – June 2020, and June to September in 2021, where the first wave and Delta wave spread respectively. As expected, a possible root of this decline would be a reduction in household consumption. Unsurprisingly, in the same periods of time, household savings peaked (savings and consumption coexist), from a long term (almost 10 year) average of 15 billion to peaks of 73 and 65 billion respectively. An interesting perspective to examine, however, is the amount of private investment, which declined in the first year of the pandemic, but rebounded higher than projections in the second year. A possible cause is what is now termed “living with Covid-19”; while businesses may have been reluctant to invest in the first year due to the initial shock of the pandemic, the support provided by the government as well as the acceptance of the situation may have been a catalyst for the extra investment in the second wave. With that being said, services investment/trade has experienced a sharp decline, from over 90 billion AUD to just over 60 billion AUD when comparing pre and post pandemic levels. What has kept Australia’s economy on two feet, however, is its trade in mineral (mining) exports. 

But every country is different, and has various other factors that shift its economy one way or another. To completely examine this issue, a thorough review of all 195 countries would need to be performed. However, in the interests of both you, the reader’s, and my time, I will introduce a few global economical impacts of Covid, and present some generalisations. Overall, there has been about a 3% decline of GWP; however, while some countries e.g. Fiji have been hit hard with almost a 20% decline, other countries like Japan actually experienced some sort of overall positive growth. With that being said, the majority of countries, including Australia, fell into recession in 2020; in fact, over 80% of countries globally did, showing Covid is one of the most significant historical events whose prominence can be comparable to the Great Depression. Of course, since we are in a strongly globalised era, disruptions like these will ultimately have a cascading effect, from the country of origin, to the economies all the way on the other side of the world. There were also many measures put in place to curb the rising unemployment and underemployment rates, which both rose quite significantly — e.g. more than 200 million people around the world were made redundant. With unemployment comes less spending, so governments injected 8 trillion USD globally, and international organisations such as the world bank provided over 150 billion USD to support developing countries. 

So moving forward, what implications are there for Australia & the global economy for the future? Let’s start with Australia. Let’s consider GDP and volume of trade. If we look at the actual vs projected GDP for Australia, we can see a trend that the gap is closing. From September 2021 to June of 2022, there has been a growth from -23 billion (behind the projected value) to just over 5 billion (behind the projected value). For this to occur, there would need to be 2 factors: a reduction in savings (or a rise in consumption), and an increase in trade, seeing as Australia has quite an open economy. Household consumption has made quite a smooth recovery, jumping from almost 40 billion behind the projection to just over 1 billion behind in the 2 year (financial year) period from 2020-2022. Australia’s trade has only experienced a small decline since the inception of the pandemic, but since then, during the 2020-21 year, Australia’s terms of trade has reached its highest level on record. Although this value is forecasted to fall, the predominant cause would not be the pandemic, but rather countries, e.g. China, taking a stronger anti-emissions stand, limiting the export markets for Australia’s primary industries. 

For the global economy, it is unlikely that all economies will return to pre-covid status any time soon; both advanced economies like the UK/USA and other emerging/developing nations are still in the midst of a recession. The IMF has also projected a period of sluggish growth over the foreseeable future (not only due to Covid but also predominantly due to the Russia-Ukraine war), suggesting that labour, employment and debt situations are unlikely to improve over the short term. In particular, many of the agricultural areas in Africa may require external assistance and subsidies to sustain the rate of trade, seeing as many countries rely on this industry; its significance can range from holding up 30-60% of employment to consisting of more than 30% of exports. Other investment growth is also expected to remain below average, especially in emerging and developing countries, presumably due to the low levels of infrastructure and healthcare, and high levels of debt. However, this issue is not just limited to EMDEs (emerging, market and developing economies). Further financial stress can also occur in countries in East Asia and the Pacific, Sub-Saharan Africa, and countries in Latin America, meaning countries may not be able to achieve many development goals (in accordance with the SDGs from the UN). 

Although these results seem rather bleak, in the next few posts, I will examine how far we have truly come, and identify some silver linings to this issue.

Image credit: Australian Financial review