Covid-19 and The Global Economy
Covid-19 and The Global Economy
Covid-19 and The Global Economy
COVID-19 was first recognized by the World Health Organization (WHO) as a global health emergency. In
January 2020, and later as a pandemic in March 2020. The pandemic has impacted all aspects of
economic and social lives and continues to do so even after 2 years since its onset. In early 2022, as
people in many countries were beginning to return to some level of normalcy, all of the 26 million
people in Shanghai were ordered to stay home as the city was in complete lockdown due to the
reemergence of new variants of the virus.
The Impact of COVID-19 on the global economy has been massive. As per an IMF report, the world has
experienced the deepest global recession since the end of World War II. In 2020, there was a 3.5 percent
contraction in the global economy as compared to the prediction of 3.4 percent growth for the same
year. While many economies rebounded in 2021 with positive growth, the negative effect is expected to
be long-lasting, especially for poorer countries. As per IMF estimates, the World GDP in 2024 will be 3%
lower than the no-COVID scenario. This reduction would be as low as 6 percent for low-income
countries and GDP in the African continent may remain 1 to 4 percent lower than in the pre-COVID
outlook on a permanent basis. Moreover, the pandemic forced governments around the world to
engage in massive fiscal support, which may limit States’ capacity for further intervention. In 2020, the
fiscal support at the global level was around $16 trillion, which is around 15 percent of global GDP. We
are already seeing some of the negative spill-overs of the pandemic in economies such as Sri Lanka. Due
to the collapse of travel and tourism Industry and significant drop in international remittances, the Sri
Lankan economy is facing a major financial crisis in 2022 and has defaulted on its external debt.
COVID-19 caused major disruption to global supply chains. At the peak of the pandemic, governments
put restrictions on the flow of goods and raw materials (e.g., certain chemicals used in drug
manufacturing) that they considered critical for the domestic markets. International and domestic
mobility was also hugely restricted, which severely impacted businesses that were directly and indirectly
involved in the travel and tourism Industry. The Impact was felt not only by large firms such as hotel
chains and airlines, but also by small entrepreneurs such as restaurants, hair salons, spas, and cab
operators. In response to the pandemic-related disruptions, many firms reconfigured their supply
chains, closed down or relocated some of their foreign operations, and have been forced to operate at a
reduced capacity due to a shortage of raw materials and components.
Two years after the onset of the pandemic, it continues to weigh heavily on people’s minds as they
assess the economic outlook. In a McKinsey Global Survey conducted in March 2022, respondents
reported the COVID-19 pandemic and its associated problems (supply chain disruptions, inflation, rising
Interest rates), along with the geo-political instability, as the key risk factors for economic growth in
their home markets.
Source: Levy Yeyati and Federico Filippini, “Social and economic impact of COVID-19”, Brookings Global
Working Paper # 158 (2021); Congressional Research Service, “Global Economic Effects of COVID-19”,
Nov 10, 2021,