The Economic Impact of the COVID-19

The COVID-19 virus has continued to see a regular decrease in each of the countries that were experiencing fast growth of cases early on (South Korea, China, etc.). Cases outside of these countries are continuing to experience rapid growth in cases, especially in Middle Eastern countries, Europe, and the US as more test kits are made available to the public.

Currently, the countries that have tested positive begin recovering, but the supply chains continue suffering from impairment. The wide quarantines, restrictions on movement, and social distance are driving a drop in consumer spending and investment in businesses this year.

The Asian countries where the disease originated have “double dip” drops and the recovery of their economies falls apart and is delayed until Q1 of year 2021. The United States has massive drops in both consumer and business spending, which drives the economy into a recession.

McKinsey has analyzed two situations that may happen economically: a slow recovery or a contracting of cases that is prolonged over a long period of time.

Slow Recovery
Coronavirus keeps spreading all the way over Europe, the US, and the Middle East until the middle of Q2 2020. Seasonal factor, in combination with a heavy-handed public health response against the virus, pushes a massive reduction in case load.

The originator countries begin their recovery process, but the supply chain issues remain throughout a large amount of Q2 and consumer money spending drops. The US and Europe continue the large quarantining, restrictions on travel, and social distancing which lowers consumer spending as well as business investment throughout 2020.

• Unemployment rate increases from layoffs.
• Corporate bankruptcy increases, putting massive pressure on the financial system.
• Quantitative easing does little to fix the situation, being too little and too late for the size of the financial calamity caused by spending drops.
• The recession continues through Q3 as a downward spiral, with recovery put off in any way until Q4.

The worldwide GDP for 2020 drops precipitously as the US and Europe plunge, with China and East Asia continue being down as well.

Extended Contraction
The spread of the virus around the globe continues, with little impact from the seasonal change. A demand shock is the result, lasting until Q2 of 2021. World healthcare systems are heavily impacted in multiple countries, with the poorer countries and areas being hit the hardest.

Both East Asia and China have massive double dip drops that push their recovery until, at earliest, Q1 2021. Meanwhile, Europe and the United States continue to suffer massive drop in both consumer and business spending, driving a recession that goes through 2020.

• Bankruptcy and layoffs continue contributing to the drop in consumer and business demand – a self-enforced downward spiral – driving the 2020 recession.
• The world financial system is massively strained, but a complete bank meltdown is avoided thanks to sufficient bank capitalization and strong internal leadership.
• Monetary and fiscal controls are not sufficient to stop the negative economic forces that have already started.

Worldwide impact is very severe, with contraction across the globe and no sign of recovery until Q2 2021.