QUESTION 1

PART 1

The impact of COVID-19 on GDP and incidents such as climate crises, geopolitical crises,

such as Russia -Ukraine War, and tensions between the US and China, bounce back in

demand from covid crisis of both countries.

This study will focus on Kuwait and United Arab Emirates (UAE)

Covid-19 which originated in Wuhan, China in 2019 and spread rapidly across the globe became

a global health crisis resulting in about 6,915,286 deaths (Ciotti et al., 2019). Additionally, the

virus resulted in worldwide shocks in numerous ways. These shocks included shortages decline

in transport services as a result of lockdowns, unemployment, an increase in global trade

expenses, and demand redistribution. The virus also resulted in a decline in services that required

close contact among individuals as it required isolation to control its spread.

According to (Mehdi et al., 2019), Covid-19 has had a significant impact on inflation, GDP,

employment, and other sectors of the UAE and Kuwaiti economies. According to research, the

GDP has declined to 2%, which is lower than the global average. GDP has also fallen to 2.5% in

developing countries and 1.8% in developed countries. The UAE GDP on the other hand

declined to 6.1% as the pandemic affected most of its resources. Many countries have been

affected by Covid-19 and issues such as unemployment, inflation and a decline in GDP have

been experienced across the globe, similar impacts of covid-19 have been observed in both UAE

and Kuwait.

Kuwait, for instance, has experienced a decline in GDP to about 4% which is below the world's

standard. Normally, in a significantly improved pandemic situation finding a cure is thought to

take longer and is currently very obvious. The production of the household facilities affected by
the pandemic as well as the services provided to tourists have experienced the biggest negative

shock.

Other factors such as climate change have affected Kuwait's GDP. Climate change has become a

threat to the human race and Kuwait together with UAE is not an exception to challenges the

world is currently facing as they depend mostly on oil exports which have declined significantly.

Oil prices in the Middle East crashed from $70 per barrel on January 6, 2020, to $15 per barrel in

March 2020 as a result of this war (Pouya et al., 2022).

The GDP of both Kuwait and UAE have also been hit so hard by the ongoing war between

Russia and Ukraine. The costly nature of shipping has caused the prices of basic commodities to

rise at extraordinary rates in the markets. The local construction industries of the major markets

were impacted by the price increase.

PART 2

Impact of the above incidents on unemployment of both countries

Covid -19 affected the two countries in different ways. Both UAE and Kuwait had to close the

provision of some key services within the economy to slow the spread of the virus. The

governments of UAE and Kuwait swiftly announced strict preventive measures to mitigate the

spread of Covid-19. They halted international sea and air transports, implemented lockdowns,

banned public gatherings, and closed eateries, other businesses, and schools (Barry et al., 2020).

This had a negative impact on both domestic and international demand, financial conditions,

consumer confidence, trade, and production. The pandemic also affected economies that rely

heavily on tourism, hospitality, and services are important sectors that support many jobs. In a

study conducted by Bidoon, 24%reporef job loss in Kuwait with about 26 facing difficulties in
paying for HomeServices like school fees. In UAE, most people lost their jobs as companies

reduced operations with some employees receiving temporary salary cuts. Job seekers found it

hard to get employment.

Both Kuwait and the UAE have seen significant increases in unemployment as a result of climate

change. Climate change has made many regions unproductive by affecting the temperature and

rain patterns. For example, due to global warming, some places are now too hot to live in, which

has resulted in migration, the growth of informal employment, and an increase in the

unemployment rate (Barasa, 2018). About 40% of oil reserves in countries in the Middle East are

threatened by climate change. This has resulted in a loss equivalent to 617 billion barrels. The

overall effect is a decline in oil processing hence unemployment.

Kuwait and China have signed a cooperation agreement, Belt and Road Initiative. China-Kuwait

relations include extensive economic and trade cooperation. Kuwait has been China's top trading

partner and the tension between the USA and China has impacted its economy( Chaziza, 2020).

For instance, the recent ban on China's TikTok company prompting Kuwait to do the same has

resulted in the unemployment of individuals who make a living through it. The former prime

minister of UAE Anwar Gargash admitted that the tension between China and USA has resulted

in trembling in the market. Should this continue, most people may lose jobs, especially in

companies involving the two rivals.

PART 3

Impact of the above incidents on inflation and the main sectors of both countries

The Covid-19 pandemic together with the mentioned incidences affected many economies across

the world. These include many countries ranging from developed to developing countries and
Kuwait and UAE are no exceptions. These two counties faced challenges in maintaining their

economy that deteriorated from having lockdowns. Jobs, stocks, and markets among others have

been by the mentioned incidents.

A report done by Arab News illustrated that Kuwait's inflation to 4.4% for consumers to 4.7%

for core inflation by December 2021. The main reason that resulted in this inflation is tackling

covid 19 pandemic according to the report.

The inflation on food in March 2022 was 7.2%. This depicted elevated prices in basic

commodities. According to that report beverages and food summed up to 17% of the consumer

price index of 2021. The housing prices rose to 2.3% in March. After several years of decline,

there are signs that prices may begin to firm up as landlords attempt to recoup greater building

expenses and as demand in the mid-level resident's rental market settles after the pandemic,

according to the report. Transport clothing and education saw the biggest price increases in

Kuwait's core inflation, which excludes food and housing, at 19 percent year over year, +5.7 %,

and +4.8% respectively. The inflation in UAE increased from 4.3 % in February 2023 to 491%

in March 2023 as shown in Figure 1 below. The reason behind this is the Ukraine tension that

has seen the oil process raising. Global warming's ongoing temperature rise is a factor in the

UAE's drought and water shortages as well as its rising sea level. Food prices have increased as a

result of this, among other things.

Figure 1: Inflation in the UAE.

Source: https://tradingeconomics.com/united-arab-emirates/inflation-cpi

Inflationary pressures are anticipated to increase globally this year. According to the report, "the

inflation outlook for 2023 is likely to be one of the persistent price pressures, particularly amid

the climate change, and the ongoing conflict in between Russia and Ukraine which is having a

disproportionately large impact on global prices of energy and food. The housing prices rose to

2.3% in March. After several years of decline, there are signs that prices may begin to firm up as

landlords attempt to recoup greater building expenses and as demand in the mid-level resident’s

rental market settles after the pandemic, according to the report. Transport clothing and

education saw the biggest price increases in Kuwait's core inflation, which excludes food and

housing,

PART 4

Explain demand shock and supply shock

Demand shock refers to an unexpected increase in demand. An unexpected rise in demand is

known as a positive demand shock, whereas a decline in demand is known as a negative demand

shock( Carvalho & Tahbaz-Salehi, 2019). The price of the item or service will be impacted by either

shock. An example of this happened in both UAE and Kuwait when the economic shutdown

resulted in to decrease in demand for oil since many companies and individuals reduced or

completely shut down their operations. The price of oil drops sharply as a result of this

unexpected decline in demand.

A supply shock is a sudden, unanticipated rise or reduction in the overall supply at any given

level of the overall price. This can be caused by changes in the prices of inputs, changes in
productivity, technology, price levels, taxes regulations, and subsidies. Kuwait for instance

experienced supply shock Russian invasion of Ukraine.

QUESTION 2

Fiscal policy and Monetary responses to cure the recession triggered by COVID-19

Pandemic and the current crises.

Fiscal policy

The use of tax codes and government spending as a tool for economic change is known as fiscal

policy. For the government to meet its economic objectives, fiscal policy is used to influence the

level of aggregate demand. Alterations in taxation levels and compositions of government

spending and taxation can affect variables of macroeconomics in numerous ways which include

allocation of resources, saving and investments, distribution of income, and aggregate demand.
Figure 2. Illustration of Fiscal Policy

The effects of fiscal expansion during the Covid- 19 pandemic, which led to a shutdown of the

economy and high unemployment, are shown in Figure 2 above. The initial equilibrium level of

the economy is P0 and Y0, where AD0 and AS0 cross. Increasing government spending and

lowering taxation increases AD from ADo to AD1 when an expansionary fiscal policy is

implemented. The output level will continue to rise from Y0 to YGTP, and the level of prices

will also rise from P0 to P1. In the UAE, the government has implemented several fiscal policies

to help save the economy that has been affected by the mentioned pandemic rises which has

resulted in a decrease in oil prices and a decline in world oil demand. These policies include

strengthening UAE economic resources, migration to digital financial transactions, and low

dependence on world currencies. In Kuwait, the effects of the mentioned pandemics on the

economy are significantly mitigated by fiscal policy, which includes both automatic stabilizers

and pandemic-related tax and spending legislation.

Monetary Policy

Monetary policy refers to the process by which the central bank alters money supply. The

government of a nation uses demand-side economics to achieve objectives of macroeconomics,

productivity, consumption, inflations, and liquidity It also involves managing interest rates and

the money supply.

Question 3

Economic outlooks of both countries

The economic outlook of Kuwait and UEA has been reformed according to the pandemic cross

mentioned. Kuwait has recorded the fastest growth rates in the economy in the Middle East. This

is due to an increase in employment for Kuwait nationals, production quotas, business credit

growth, healthy consumers, and generous fiscal support. Momentum in 2023 is probably already

slowing down. Due to stricter OPEC+ quotas, oil output growth decreased from an average of

12% last year to only 4% in January and February of this year. The annual bank credit in Kuwait

has also eased compared to last year. Sadly, political uncertainty as a result of the cabinet's

resignation with the reinstatement of the previous parliament is likely to delay the economic

reforms.

Figure 3: Oil exports, unemployment rate, and labor force in Kuwait from 2012.

From Figure 3 above Kuwait has made improvements in oil exports and the unemployment rate

has not declined. This is good progress and should this continue, the economy of Kuwait is likely

to make a full recover from covid-19 pandemic and other crises. The economy of UAE is

expected to also increase from 4.6% estimated in 2022. This due to rising hydrocarbon output
will ease OPEC and other supply restrictions. Private consumption is also recovering this is

expected to increase the economic activity of UAE this year, 2023.