Professional Documents
Culture Documents
Submitted to:
Institute of Business
Administration
University of Dhaka
Submitted by:
Section A, BBA 27
Sincerely,
_______________________
Naziba Ali
Roll: 93
Section: A
BBA 27, IBA-DU
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EXECUTIVE SUMMARY
As the novel Coronavirus started to spread beyond its home ground China, many countries have
already undertaken necessary steps to limit the spread of the virus through social isolation
policies, such as shutting educational institutions, limiting work and restricting the mobility of
people. But these preventive actions have had an immediate and significant effect on all
economies starting with stagnant or reduction in economic growth, rise in poverty level, an
increase in international trade costs, a drop in travel services, and a decreased demand for
activities requiring physical vicinity. That is, the virus that triggered a localized shock in China is
now delivering a prominent global shock and countries are struggling to cope with the situation.
This report not only studies the potential impact of COVID-19 on the world as a whole but also
focuses acutely on Bangladesh. Considering the global scenario, the first shock of Covid-19 is a
drop in Gross Domestic Product by 2%. The second shock increases the international trade costs
of imports and exports by 25%. Under the amplified global pandemic scenario, global exports
decay by 4.6 %. The third shock entails a sharp drop in international tourism. The World Travel
& Tourism Council (WTTC) predicts that global travel would decline at least 25% in 2020. The
fourth shock is related to the reduction in services and factory output. Many factories are closed
and there has been significant number of layoffs. From the perspective of Bangladesh, the
Readymade Garments (RMG) industry has received work order cancellations of nearly $3 billion
which is negatively affecting around 6 million workers. Besides, it has been predicted that if
Covid-19 causes 25% decline in family income, poverty rate in Bangladesh may rise to 40.9%.
In order to tackle this pandemic situation effectively, respective government has to step forward
with sufficient stimulus packages and the private sector has to co-operate accordingly. Above all,
multilateral co-operation among countries is a dire need in the present day context.
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TABLE OF CONTENTS
Letter of Transmittal…………………………………………………….…...i
Executive Summary……………………………………………………..…..ii
1.0 Introduction……………………………………………...………….…...1
2.0 Global Socio-economic impact of Covid-19……………………….…2-8
2.1 Impact on GDP and overall economic growth……….……….…..2
2.2 Rise in unemployment……………………………………….……4
2.3 Impact on global trade…………………………………………….5
2.4 Impact on travel & tourism industry………………………………6
2.5 Stock market crash & global recession……………………………8
3.0 Covid-19 scenario in Bangladesh………...………………………………9
3.1 The economic threat……………………………………………….9
3.2 The social threat…………………………………………………..10
4.0 Conclusion…………………………….…………………………………10
References………………………………………………………………..11
5.0
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INTRODUCTION
The novel coronavirus (severe acute respiratory syndrome) first surfaced in Wuhan, China in
December, 2019. According to WHO’s first situation report, the first confirmed cases outside
mainland China transpired in Japan, South Korea and Thailand. The epicenter of the pandemic is
in the US, which has more than 1 million confirmed cases. The World Health
Organization declared the outbreak a ‘Public Health Emergency of International Concern’ on 30
January and a pandemic on 11 March, 2020. As of 19 May 2020, more than 4.8 million cases of
COVID-19 have been reported in 188 countries resulting in more than 318,000 deaths. More
than 1.78 million people have recovered from the virus. Lockdown has been made mandatory in
many countries to control the spread of the virus. The pandemic has also caused severe global
economic disruption, including the largest global recession since the Great Depression This
includes cancellation of sporting, religious, political, and cultural events, widespread supply
shortages exacerbated by panic buying, and decreased emissions of pollutants and greenhouse
gases. Research teams and pharmaceutical companies across countries are diligently working to
develop a vaccine that can protect people from the attack of this virulent virus.
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2.0 GLOBAL SOCIO-ECONOMIC IMPACT OF COVID-19
2.1 Impact on GDP and overall economic growth
While there is no way to tell exactly what the economic damage from the global COVID-19
novel coronavirus pandemic will be, there is a prevalent agreement among economists that it will
cause a major blow in the global economy. In the World Economic Outlook, April 2020 IMF has
predicted that major economies will lose at least 2.4% of the value of their gross domestic
product (GDP) over 2020. It has also been estimated that the global will shrink sharply by –3%
in 2020 which is much worse than that of the 2008-09 financial crisis. That is, the global
economy may suffer a loss between $5.8 trillion and $8.8 trillion.
Graph 1: Impact
Impact of Covid-19 on Global economy
of COVID-19 on
World
Global Economy
Emerging market and developing economies
Source: World
Advanced economies
Economic Outlook,
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
April 2020
However, there is
extreme uncertainty
around the global
growth forecast.
Estimated GDP Growth 2019 Estimated GDP Growth 2020 Estimated GDP Growth 2021
The economic
fallout depends on
the correspondence among several factors, such as course of the pandemic, the intensity and
efficacy of preventive measures, the extent of supply disruptions, shifts in spending patterns,
behavioral changes (lockdown state), plunge in service industries and manufacturing, country’s
policy responses etc.
The home ground of the novel Coronavirus- China is the world's second largest economy with a
contribution of around 9.5% to global GDP. But in the pandemic situation, China’s GDP has
dropped by 6.8% (January-March) which is responsible for a larger spillover effect on the whole
global economy. Table 2 portrays the estimated economic shock due to the current COVID-19
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Estimated cost of lockdown (% of GDP)
United States
United Kingdom
Thailand
Switzerland
crisis which has been
Spain
Singapore expressed as a
Malaysia
Italy
percentage of GDP for
India each country.
Malaysia
China, People's Republic of Graph 2: Economic
Canada
Australia cost (% of GDP) of
-20 0 20 40 60 80 100 Covid-19 lockdown
March-mid June (%) March-mid August (%)
On average, for all the countries analyzed, the expected GDP growth in 2020 due to 3 months
lockdown is -6.2%. The GDP of USA will fall by 5% and countries like Germany, Greece, Italy,
Portugal and Spain growth face a GDP decline of -7% or more. In case of a 4.5 month lockdown,
growth in the advanced economy group (where several economies are experiencing widespread
outbreaks) is projected at –6.1% in 2020. Most economies in the group are forecast to contract
this year, including the United States (–5.9%), Japan (–5.2%), the United Kingdom (–6.5
percent), France (–7.2%), Italy (–9.1%) and Spain (–8%). On the other hand, the group of
emerging market and developing economies is projected to contract by –1% in 2020 excluding
China (-2.2%). In parts of Europe, the outbreak has been as severe as in China’s Hubei province.
On average, each additional month of GDP will cost 2.5-3% of Global GDP as estimated by the
International Monetary Fund. Again, if the lockdown persists for 6 months the average decline in
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GDP is assumed to be 10.4%. In such a scenario, countries highly dependent on foreign trade
will be the worst sufferers. In extreme scenario, the decrease in GDP could even be higher than
12%. If the pandemic fades in the second-half of 2020, global growth is expected to rebound to
5.8% in 2021.
2.2Rise in unemployment
Many economists warned that lockdown measures around the world will accelerate job losses
which is already prevalent in unemployment numbers in several economies. Global
employment decline will stand
between 158 million and 242
million jobs, with Asia and the
Pacific comprising 70% of total
employment losses. As per the
International Labor Organization
(ILO), almost 1.6 billion informal
economy workers out of a
worldwide total of 2 billion have Figure 1: Unemployment Rates in Selected economies
suffered massive damage to their capacity to earn a living (60% drop in income). This is due to
lockdown measures and/or because they work in the hardest-hit sectors: food and
accommodation (144 million workers), retail and wholesale (482 million), business services and
administration (157 million) and manufacturing (463 million).
United States of America: As lockdown hit, companies are at the verge of stopping their
operation and even closing down their business for good. Till now, more than 30 million people
alone in the USA have applied for unemployment benefits. As per the Bureau of Labor Statistics,
the country’s unemployment number rose to 701,000 jobs in March, the biggest loss of jobs
since the 2007-2009 Great Recession. State and local governments laid off 1 million workers in
April and are currently running out of money and collectively posing a threat to the national
economy.
United Kingdom: Official figures have revealed that 950,000 people in The United Kingdom
have applied for the government’s universal credit benefit since the UK’s lockdown began on
March 16. The Office for National Statistics confirmed that more than a quarter of businesses
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surveyed were cutting staff levels in the short term. This has taken Britain’s unemployment rate
from 3.9% before the Covid-19 outbreak to 5.2% in April . It is also estimated if the lockdown
persists till the end of 2020, around 6.5 million jobs could be lost in the process.
India: Centre for Monitoring Indian Economy has shown that unemployment shot up to 23.5%
(122 million) in April from 8.7% in March. And on May 3, it rose to 27.1%- the highest ever.
About 90% of India's 500-million strong workforce toils in unregulated businesses and jobs
which is a significant part of its vast informal economy . That is, low-income migrant laborers
are the biggest sufferers of COVID-19 lockdown as many started losing jobs as construction sites
shut down.
Italy: As we know, Italy is among the countries with the highest number of COVID-19 cases
worldwide. The crisis is revealing the terrible plight of millions of Italian citizens now in dire
financial straits because they have had to stop working after the lockdown was imposed.
More than 178,000 companies had to lay off more than three million workers due to the
economic shutdown. According to a forecast from March 2020, the unemployment rate in Italy
could reach 11.2 percent in 2020. COVID-19 outbreak had a negative impact on several
industrial sectors in Italy. About 1.7 million people are employed in accommodation and food
services alone. With tourism graph at a down low, this could prove disastrous for many
businesses.
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(7.36%), Cambodia (7.4%) and Singapore (4.4%). This is due to the presumed increase in
transactions costs in foreign trade which is driven by additional inspections, reduced hours of
operation, border closures, increases in transport costs etc.
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2.4 Impact on travel & tourism industry
At present, the contribution of travel and tourism industry accounts for 3.3% of the total global
GDP. In fact, tourism industry of Spain, Italy and Greece contribute around 14%, 13% and 18%
respectively to their national GDP. But the COVID-19 pandemic has caused a disruption in
this industry due to travel restrictions as well as reluctance among travelers. The United Nations
World Tourism Organization estimated that global international tourist arrivals might decrease
by 20–30% in 2020 leading to a potential loss of $30 to $50 billion. Out of the top 10
international travel destinations (France, Spain, United States, China, Italy, Turkey, Mexico,
Germany, UK and Thailand), 8 result to be the hardest hit by COVID-19 implying that the
economic shock will be far worse for these countries. In 2019, China itself has had foreign
exchange earnings of about $127.3 billion from its tourism industry which has shrunk in 2020 as
all flights and cruise lines have cancelled. According to the latest estimations, Asia will see the
highest drop in travel and tourism revenue in 2020, with China accounting for the lion’s share of
lost revenue. In Europe, around €1 billion in revenues per month is expected to be lost as a result
of coronavirus, with Italy and Spain being the most affected. Italy is likely to end the year with
60% less presences compared to 2019. The Spanish tourism sector would encounter losses of
around €55 billion by the end of 2020. Another group of countries that will be heavily crushed
are the so called SIDS (Small Island Developing States) since the tourism sector accounts for
almost 30% of their economy.
Aviation industry: As per the International Air Transport Association (IATA), the aviation
industry will lose $314 billion in revenues and half of their passengers in 2020. The decline in
traffic is estimated to reach 90% in April, thereby putting 75 million jobs at risk. While aircrafts
remain on the ground, fixed costs continue to occur- Lufthansa (1.03 billion euros), Ryanair (235
million euros). The post Covid-19 scenario for this industry will somewhat look like this-
Airlines with massive debt might have to file for bankruptcy, e.g. American Airlines
People may reduce travelling due to an apprehensive recession
Lufthansa has already eliminated 6 Airbus A380s from its fleet i.e. Airlines will prefer
medium-capacity aircraft whose profitability can be achieved with fewer passengers.
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Consequently manufacturers such as Embraer and Bombardier might receive more orders
from Airbus and Boeing.
The hubs will become even more important because passengers will have to be
concentrated to ensure sufficient aircraft load. Regional or smaller airports will see a
decrease in traffic.
By April, about 16 million job loss occurred in the USA and resultantly consumer spending
dropped by 8.1%. As a result of the recession, China's economy contracted for the first time in
almost 50 years. The national GDP for the first quarter of 2020 dropped 6.8%. Japan contracted
experienced a 3.4% drop in GDP in the first quarter of 2020 and capital expenditure reduced by
0.6%. As per IMF, Australia is expecting a recession with at least 10% unemployment (the
highest in 25 years) and at least a 6.7% decrease in GDP. The Bank of England estimated that the
UK economy could shrink 30% in the first half of 2020 and that unemployment would increase
to 9% in 2021. On 21 April, the United Nations World Food Program estimated a famine that
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could affect 55 countries, such as Afghanistan, Syria, Myanmar, Chad, Iraq, Kenya etc.
However, IMF projects a decrease in food prices by 2.6% in 2020 due to supply chain
disruptions, border delays, food security concerns and export restrictions. Demand for oil and oil
prices dropped further in March and producers and traders literally had to pay buyers to take it
off their hands. To combat this recession, some advanced countries have offered support bundles.
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3.0 COVID-19 SCENARIO IN BANGLADESH
The first three COVID-19 cases of Bangladesh were reported on 7 March 2020 by the country's
epidemiology institute, IEDCR. By mid-April, the number of affected people grew by 1,155%-
the highest in Asia. As of 18 May 2020, there have been a total of 23,870 confirmed cases with
4,585 recoveries and 349 deaths. However, testing rates are very low (240 tests per million only).
22% fall in
remittance flow
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3.2 THE SOCIAL THREAT
Large segments of the population (around 85%) - the poor and low income people are employed
in the informal sector and do not have stable incomes. As per Bangladesh Bureau of Statistics,
around 34 million people (20.5%) already live below the poverty line. The SANEM model
indicates that a large segment (43 per cent) of this vulnerable population is engaged in crop-
production, livestock-rearing and fish-cultivation. Others are industrial workers working in
garment factories (16%), retail businesses (11%), transportation (10%), and construction sector
(7.0%). If Covid-19 causes 25% decline in family income, poverty rate in Bangladesh may rise
to 40.9%. The ILO study estimates an income loss between US$860 billion and US$3.4 trillion
by the end of 2020. This will translate into falls in consumption of goods and services and
thereby affecting the prospects for businesses and economies. Besides continuity of education is
being hampered since marginalized groups in the community do not have access to remote
education facilities. A significant number of children and women can face domestic violence if
the lockdown persists for longer period.
4.0 CONCLUSION
While many countries have made good starts in stimulus packages, Bangladesh has been slower
to react. India’s economic stimulus package is 10% of its GDP, Japan’s is 21.1%, followed by
the US (13%), Sweden (12%), Germany (10.7%), France (9.3%) and Italy (5.7%). The Prime
Minister of Bangladesh initially announced an emergency stimulus package of $600 million
(0.2% of GDP) which was later increased to $8.5 billion (2.5% of GDP). The government should
also consider an unconditional cash transfer program at a rate of $95 (minimum wage in
Bangladesh) per month for 3 months. This would cost the government roughly 4% of GDP.
Transaction limit on mobile financial services has been heightened and monetary policy rate is
reduced by 25 basis points. The World Economic Forum, with a mandate from the World Health
Organization, has launched the ‘COVID Action Platform’ in response to the pandemic which has
been able to bring together the government and the private sector.
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REFERENCES
BBC News. 2020. Coronavirus: A Visual Guide To The Economic Impact.
Khan, N., Fahad, S., Faisal, S. and Naushad, M., 2020. Quarantine Role in the Control of Corona Virus in
the World and Its Impact on the World Economy. SSRN Electronic Journal,.
News, B., 2020. China’S Economy Suffers Historic Slump Due To Virus Shutdown.
World Economic Forum. 2020. COVID-19: How Bangladesh Should Respond To Economic Threats.
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