Analyze short-term and long-term economic effects of the Covid-19 pandemic.

2020 can be summed up in one word: Covid-19. It appears to be the greatest challenge
humankind has faced since World War II. The pandemic has reshaped the global economy in
numerous ways. Its economic effects are not only felt within months but also spread over a long
time. However, it would be a mistake to only think of adversity since the pandemic does bring
some silver linings. This essay analyzes the Covid-19 pandemic through an economic lens: it
discusses unemployment, decreased business activities and the tech industry boom as short-term
consequences, and examines economic scarring and logistics changes as long-term impacts.

The most notable short-term effect of Covid-19 is unemployment. Covid-19 pulls many
people out of work, especially those employed in the service and manufacturing sectors. In the
US, unemployment peaked at an unprecedented level in April 2020 at 14.8%, with the hospitality
and leisure industries experiencing 39.3% unemployment (Congressional Research Service,
2021). As a result, the household income slumped noticeably. The General Statistics Office of
Vietnam (2020) recorded that 31.8 million adults were affected economically: 68.9% had their
income dwindled, 40% had their pay hour/ pay day cut and 14% stopped working/ shut down
business altogether. Covid-19 hits the lower-income households the hardest since they have
limited savings and lack of health insurance. Without the constant flow of earnings, they quickly
fall for homelessness and starvation. If they, unfortunately, contract the virus, it is almost
impossible for them to pay the medical bills. Unemployment makes people financially
vulnerable and causes social unrest: family tensions and breakdown, boredom, alienation, shame,
stigma, and sometimes, crime.

Covid 19 put a substantial financial burden on several industries and businesses. One of
the worst-hit sectors is hospitality, directly impacting travel agencies, airlines, restaurants, hotels,
and the like. The estimated loss from tourism in Vietnam is worth 23 billion US dollars, with a
decrease of international tourists by 80 percent (Nguyen Ngoc Thien - Minister of Culture,
Sports and Tourism, 2020). As a result, multiple businesses went bankrupt or suffered from
enormous debt. Another devastating sector of the market is the consumer goods industry. As
income dwindles significantly, people are reluctant to spend money. They avoid unnecessary
purchases like luxury items, cars and motorbikes, cosmetics, and clothing. Small businesses are
particularly vulnerable because they have limited capital and are not eligible for huge loans. The
General Statistics of Vietnam reported over 101,000 cases where business either stopped or shut
down, a 14 percent increase from the previous year.

Apart from all the adversity, the pandemic does lighten up the global economy somehow
in the short term. One positive impact that Covid-19 brings is rapid technology adoption: the
acceptance and use of new technology. Meeting apps have started to take its place in the market
by providing the tool to work in educational and professional environments. One prime example
is Zoom, claiming 300 million daily meeting participants in April 2020, compared to just 10
million in December 2019 (Zoom Blog, 2020). The shift from in-person to virtual meetings
offers excellent convenience and savings for workers and students, especially when it is costly
and dangerous to go outside. Another industry coming out of the pandemic stronger than ever is
fintech or financial technology. The boom of fintech is primarily due to social distancing and
lockdowns. It allows access to financial services during the pandemic, particularly in emerging
markets, which is critical for poverty reduction and economic growth. On average, firms in
digital asset exchanges, savings, payments, and wealth management enjoyed growth in volumes
and transaction numbers of 11 and 13 percent, respectively (World Bank, 2020).

Besides the effects that the global economy may face in the short run, long-term impacts
are anticipated. One of the main issues is the expected long-term economic scarring from Covid-
19. Gavyn Davies, the chairman of Fulcrum Asset Management, suggested that structural
changes in sectoral output caused or accelerated by the pandemic would trigger bankruptcies and
job losses. The effects of greater uncertainty will include higher precautionary savings by
households and lower business investment, particularly by companies with high debt. Scarring in
2022 is forecasted to be 3.0 percentage points of global GDP (OECD Interim Economic
Assessment, 2020). The scarring effect is likely to persist for the rest of the decade.

Another long-term effect of the Covid-19 pandemic is how it facilitates a shift in capital
and resource allocation. It makes multinational firms rearrange their priorities and act
accordingly, but this effect can only be felt in the long run. Take the global supply chain, for
example. Manufacturing giants are making a transformative shift, from an emphasis on low costs
and lean inventory to resilience and stability. In other words, the new key driver for success, they
realize, is the continuity of supply rather than price. Law firm Foley & Lardner LLP conducted
interviews with 150 manufacturing companies and released the Global Supply Chain Disruption
and Future Strategies Survey Report. It found that 70% of respondents expect Covid-19 will lead
to less focus on sourcing from the lowest-cost supplier and 62% expect less focus on just-in-time
(JIT) manufacturing models. Covid-19 also helps firms accelerate their independence from China
- the manufacturing and outsourcing hub. The trend had already started in the US-China trade
war but increased speed due to the pandemic.

In the long run, the global economy undoubtedly will recover itself and better prepare for
future challenges, including pandemics. Harvard Business Review divided the economy into
three different sectors: sectors unaffected by Covid (housing and financial services), sectors
impacted by lockdowns (durable goods and automobiles), and the sectors that are vaccine
dependent (a mix of services). Although the last two sectors have suffered significantly short-
term effects, they will bounce back and sometimes even exceed the pre-crisis level, thanks to the
swift policy response and medical development. For example, the oil industry has an inelastic
demand in the short run; however, when firms adapt to the changing prices and explore
alternative resources, crude oil will be elastic.

In conclusion, the Covid-19 pandemic has deeply wounded the global economy. The
wound is bleeding as unemployment is prevalent and business activities are stifled. After many
years, the scar will be still visible because of a legacy of macroeconomics issues. Though
devastated, the world will come out of the pandemic more resilient and better prepared for future
disruptions due to the technological advancements and sustainable allocation of resources
inherited from the Covid-19 era.
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