1.

Background literature (The outbreak of COVID-19)

This paper contributes to two main strands of literature. The first is on the economic
effects of COVID-19 and containment measures, including based on theoretical and
empirical modelling and past pandemic episodes.
Given the life of the pandemic is just about four months, research on the economics of
COVID-19 is at early stage and still emerging. As the evidence of economic impacts keep
emerging, research think tanks and media outlets are in a race to publish commentaries,
editorials, and analytical pieces[1].
In the last 1800 years, there have been over two dozen major pandemics in human history
due to the spread of infectious diseases as humans have expanded across the world.
Although outbreaks of diseases occur frequently in modern times, not all of them become
pandemics like the coronavirus outbreak. Advancements in health knowledge and
technology have increased the ability to control diseases, but the likelihood of pandemics
has also increased due to larger cities, more exotic trade routes, and increased contact with
different populations, animals, and ecosystems[2].

Source: visual capitalist (2020) [5].

Despite the occurrence of many pandemics throughout history, most of the

information available about them focuses solely on the death toll they caused. The Black
Death is a significant example, as it resulted in a change in the functional distribution of
income due to a shift in relative factor prices. While per capita GDP grew, gross product fell,
and the decline in population actually led to an increase in per capita product, which is
contrary to what typically happens in modern economies. Additionally, the rising surplus -
the share of total income exceeding the level of subsistence - likely resulted in an increase in
inequality. [3]. The COVID-19 outbreak initially started in China, with a high number of
infected and death cases. However, it quickly spread to Europe, and Italy became the next
epicentre. As of March 30, 2020, the United States had the highest number of confirmed
cases and deaths, with 164,620 confirmed cases and 3,170 deaths. This made the US the
latest epicentre of the disease.[4]
Baldwin and Tomiura (2020) argue that COVID-19 is a demand and supply shock that
will slow down global trade flows, and may cause manufacturing distress and supply-side
contagion due to international supply chain distortions. Beck (2020) discusses the financial
and banking risks created by the pandemic, including the effects of the pandemic's
economic impact globally, fiscal and monetary policy reactions, and regulatory reactions to
address bank fragility. According to Cecchetti and Schoenholtzon (2020), banks are highly
vulnerable to economic shocks, and the challenge of this situation is similar to stemming a
bank run. Mann (2020) notes that the interlinkage between global commodity markets,
financial markets, public sentiment, and the economy makes it challenging for policy
responses. Cochrane (2020) suggests a detailed pandemic-induced financial crisis plan with
targeted bailout packages to fight the effects of bankruptcies and insolvencies. Based on the
economic effects of influenza pandemics, Wren-Lewis (2020) predicts that COVID-19 will
cause reduced labour supply, higher production costs, higher temporary inflation, and
reduced social consumption, resulting in a reduction in economic growth.
1. Decrease in global production: The most direct and severe impact of the virus
outbreak is the sharply reduced production of goods. In most cases, many production
factories have been totally shut down not only in mainland China but also most parts of the
globe. Chinese production has already been significantly impacted due to the long term
lockdown in most areas including the Hubei province.
2. Disruption in supply chain: As it a well-known fact that a number of manufacturing
firms depend on imported transitional inputs from China and other countries affected by
the deadly infection (e.g. Japan, South Korea, Germany). On the other hand, many
companies also rely on sales in China to mitigate their financial goals. The slowdown in
economic activity as well as restrictions in transportation affected countries will most
possibly to have an impact on the production and profitability of specific global companies,
particularly those involved in manufacturing and in raw materials required in
manufacturing.
3.The financial impact of COVID-19 on firms and financial markets could lead to
temporary disruptions in inputs and production, particularly for firms with insufficient
liquidity. Traders in financial markets may not accurately predict which firms are at risk,
leading to a rise in overall risk. This could reveal that key financial players have made
inappropriate investment decisions, eroding trust in financial instruments and markets. As a
result, a significant disruption in financial markets may occur due to concerns about
counterparty risk[6]
 The actual loss in GDP for the low Ebola scenario is highest in Sierra Leone (US$219
million), followed by Liberia (US$188 million) and Guinea (US$184 million). For the high
scenario, it ranges from US$315 million (Guinea) to US$245 million (Liberia), while Sierra
Leone could lose as much as an annual average of around 7.1 percent between 2014 and
2017. At purchasing power parity, this GDP loss comes to around $716 million for the three
economies [7, 8, 9]

2.The Economic Impact of COVID-19 on Trade

International trade plays an important role in the economy of each individual country. It
allows to satisfy the needs of the population; stimulates the internal development of the
country. Besides, trade contribute the lion share for the global economy. Trade and tourism
combined, they made up about 18% of the global economy[10].

2.1 Economic Impact on Tourism and aviation industry

The World Travel & Tourism Council’s (WTTC) research which was conducted based on the
data of 185 country and 25 regions, reveals that the tourism and travel sector accounted for
10.4% of global GDP and 319 million jobs, or 10% of total employment in 2018 and the
direct contribution of Travel & Tourism to GDP in 2018 was USD 2,750.7bn (3.2% of GDP)
[11].The tourism sector is more vulnerable to the COVID-19 epidemic and it is associated
economic pressures than any other economic sector. Because it is based on interaction
among people.
Currently the tourism sector is one of the hardest-hit by the outbreak of COVID-19, with
impacts both on travel supply and demand. As of April 7- 2020, UNWTO estimates that in
2020 global international tourist arrivals could decline between 20-30%, down from an
estimated growth of 3%-4% forecast in the early January 2020. This could translate into a
loss of US$ 30 to 50billion in spending by international visitors [12].

2.2 Economic Impact on Education Sector

As the world comes to term with the scale and severity of the COVID-19 pandemic, the
health of the global population is rightly taking priority over education through non-
pharmaceutical interventions (NPIs) like school closures [13]. At the beginning of march-
2020, 120 countries have close schools impacting almost a billion students across the globe
that have seen their schools closed for varied lengths of time [14].
Most government around the world have temporarily closed educational institutions to
contain the spread of the COVID-19 pandemic. This worldwide school closures forced over
91% of the world’s student population to stay at home with different probability levels of E-
learning opportunity. Several other countries have implemented localized closures
impacting millions of additional learners [15].
 source: WTO Secretariat
figure 3. World merchandise trade volume,2002-2020

3. Practical recommendations

The world is watching one of the worst disasters taken once in a century. Therefore, the
losses in lives as well as economy are bound to be enormous. But as human, we can only
hope for the best option and prepare for some practical measures to recover from such
disaster. This section has been used to make some action recommendations for the policy
makers and business owners that might come to some help.

Short term measures

Such initiatives can be taken to avoid or prevent the short term losses made by the
virus infections mostly to save lives and survive the small businesses. Such measures
might range from providing cash incentive to removing the consumption/value
added taxes (Stojković et al., 2013) as instructed by various authors in emergency
economic situations.

1. Cash incentive: A good and effective measure can be to provide emergency cash
incentive to the individuals and SMEs to survive and buy the daily necessities. Such
a measure has already been taken by different Governments including the US. US
Senate has recently passed a bill to release $1 trillion to help families in the US. The
assistance can be $ 1000 depending on the family size. The White House is also
planning for another bill that can provide $300 billion for small businesses, $50
billion in loans for cash-strapped airlines and $150 billion for loan guarantees to
other distressed economic sectors (Channel News Asia, March, 2020). For
temporary survival, such initiative can be taken in order to revive the economy. Such
cash incentive might also prevent the employers from job cut thereby reducing the
fear individuals to be jobless.

2. Removal the interest for short time: For a short period of time, for example, 6
months to 1 year, the interest amount can be removed for the money borrowed by the
small businesses from banks and other financial institutions. Such interests can be
paid by the local or central Governments in order to motivate the SMEs for well
survival and continue their usual businesses.

3. Rationing: The local authorities should put strong rationing system in order to
avoid access buying habits amid fear of lockdown. Such excessive buying that are
purely unnecessary that cause pressure on the consumer products and ultimately
raises the price. We have seen in many countries that the selves are already empty
due to the unnecessary bulk purchases by the people. The authorities should put
strict control on the amount buying depending on the family demand.

4. Reduction in personal and corporate tax bracket: Another short term measure the
policy makers can consider is reducing the personal and corporate tax bracket
(scope). It can be an effective indirect incentive that the Ministries of Finance can
consider due to this stronger and uncertain attack on personal income for many
lower income groups.

Long term measures

The long term measures in order prevent or slow down the negative impacts can be
usually taken on the basis of more than one year. Unlike short term measures
narrated above, the results from these measures can only be seen in a longer period.

1. Interest rate cut: A good initiative can be a substantial interest rate cut by the Central
Banks. Such cut can encourage the businesses to take loan from the banks and invest in
regular production and/or financial activities. In addition, interest rate cut might indirectly
encourage the firms engaging in production activities that are conductive for related
businesses such as suppliers of raw materials and intermediate buyers.

2. Increasing the amount of public works: If the duration of infection and lockdown is longer
than expected, a good initiative can be the creation of mass public/Government works once
the outbreak is controlled. As it has been mentioned on the previous paragraph, when large
numbers of manufacturing/construction (e. g. roads, bridges, larger buildings, dams etc.)
works are initiated, they help the other related businesses to revive. For example, if the
Government takes mass public construction around the country, it will help other industries
such as steel, iron, bricks, cement, electric appliances, paint and so many others to
manufacture and supply their productions to the core construction projects (Kitanović &
Krstić, 2010). As a result of all these, existing jobs will be retained and new job will hopefully
be created as well.
3. Removal of consumption/value added taxes: Without any doubt, the aftereconomic shock
of any emergency situation is severe. Most of the experts feel that the consumption of
consumer goods will largely drop after COVID-19 will disappear. One tested cure for such
lack of demand is to reduce the price resulting in inspiring general consumers to buy more.
As we all know, higher consumption leads to higher production and higher production leads
to higher GDP and generation of employment. Therefore, this paper proposes that the
Governments may temporarily reduce or remove the indirect taxes such as consumption tax
(Stojković et al., 2013) or value added tax (VAT). Such a measure can help to increase
consumption in an after COVID-19 hit economy.

4. Increasing the research fund for scientific investigation: An obvious fact COVID-19 has
taught us that we have to increase the research fund on scientific investigation in order to
defeat the threat of such virus infections. Such investment can reduce largely the threat and
loss of lives that, in turn, would save the economy. The authorities should understand that
life is not for economy, but economy is for life[16].

6. Conclusion

COVID-19 will certainly reduce a substantial portion of world GDP. Many ecumenists believe
that it will at least one-third of the previously predicted one. At least for the shorter period,
many sectors will have to cut employments due to reduced production and limited financial
operations. The longer effects are yet to be estimated depending on the existence of the
outbreak followed by global lockdown. The world has seen such a deadly lockdown
and disruption only after the Second World War. It is obvious that the longer the outbreak
is, the severe the damage in the economy will be. As humans, we can only hope that the
best will happen. The positive side is that many Governments are working together and
extend their helping hands to cooperate another. The World Health Organization (WHO) has
branded COVID-19 as the common enemy number one for the human. Therefore, we can
expect that all the countries will work and fight together against such invisible enemies at all
times.
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