For Tomorrowers ®

Pandemics and Economics : COVID-19 Crisis

Refk SELMI(1) and Jamal BOUOIYOUR(2)

The Organisation for Economic Co-operation and Development (OECD) warned that « Coronavirus puts the global economy at risk ». The new coronavirus disease (COVID-19) is more than a health crisis. It seems to be infecting economies as promptly as it does people. The major issue is not just the number of infected persons, but also the huge level of disruption to economies from the conducted containment measures. The COVID-19 outbreak has yielded major international institutions and banks to cut their growth forecasts. According to the OECD Economic Outlook Report (2020), there are two possible scenarios (see Figure 1) : The first is the contained outbreak scenario considering that the epidemic peaks in China in the first quarter of 2020, with a gradual recovery in the second quarter, and that its propagation in the rest of the world will be rapidly contained. Under such circumstances, the global growth could be lowered by about 0.5% this year, compared to the forecasts of November 2019. However, this estimate was based on a limited contagion to China. The second is the broader contagion scenario (much more alarmist), when it is very difficult to contain and control the pandemic. In this case, the impact on global growth could rise to 1.5%.


The global economy witnessed an unprecedeted uncertainty (increasing trade tensions between China and the US, the escalation in the rift between the U.S. and Iran, geopolitical developments in the Middle East, the political deadlock over Brexit and oil price war between Saudi Arabia and Russia, among others). Recent events (in particular, the anxiety over the new virus) suggest that growth could weaken further (OECD, 2020). The current high and growingly entrenched uncertainty is sufficient to hinder investment and growth (see Figure 2).


The detrimental economic effects of these developments for other countries are significant, due to the disruption to global supply chains, a decline in demand for imported goods and services as well as the marked decrease in international tourism, business travel and consumer confidence. Relative to the SARS outbreak in 2003, the global economy has become much more integrated, and China plays now a much more pronounced role in global GDP, industry, trade, tourism and FDI (Figure 3). This would undoubtedly intensify the economic spillovers to other countries from a negative shock in China. Even if the outbreak will be contained in the next few months, with a gradual recovery in output, the COVID-19 could damage global growth in 2020.


Due to the coronavirus and the resulted supply chain distruption, the shutdown of factories and offices and travel restriction, the manufacturing sector in major economies (in particular, US, Eurozone and Japan) has been harmed (Figure 4). It must be stressed that China is the largest exporter and second largest importer of merchandise. It, therefore, plays a potential role in the global value chain as a hub of both demand and supply. China is a manufacturing superpower. It is regarded as the factory of the world. Based on the data of the United Nations Statistics Division, China accounted for nearly 28 percent of global manufacturing output in 2018. With a value added by the Chinese manufacturing sector approximately amounting $4 trillion in 2018, manufacturing sector accounted for 30% of the country’s total economic output.


The new deadly virus has also exerted an adverse impact on services industry (see Figure 5) as a decline in consumer spending would have a harmful impact on retail stores, restaurants and air transport, among others. Huge difficulties in trade and travel will interrupt the flow of goods and services, with adverse consequences in industries where supply chains depend highly on supplies from China.



With the wide-scale transmission of the coronavirus, all economic players (consumers, suppliers, financial intermediaries, etc) are facing an unprecedented crisis, which requires coordinated responses from all countries. And especially in the case of the European Union which became biggest cluster of coronavirus cases.3 There are uncoordinated responses from different countries. This lack of coordination and solidarity rises the anxiety of citizens who lose confidence in the authorities’ ability to appropriately deal with the crisis. According to an Ipsos online survey conducted in mid-February 2020 in nine countries (Australia, Canada, France, Germany, Italy, Japan, Russia, United States and United Kingdom), the majority believe that the coronavirus outbreak will have adverse consequences on the financial markets and the global economy and that it will take longer to be contained (see Figure 6).



Notes : These are the results of an Ipsos survey ( conducted mid-February 2020 on the Global Advisor online platform among 9,0001 adults aged 18-74 in Canada and the United States and 16-74 in Australia, France, Germany, Italy, Japan, Russia and the United Kingdom.

The financial markets, known for their exuberance and excessive reactions (Figure 7), will exacerbate the general panic. If a remedy is not found promptly, the panic would have a substantial impact on the global market. Since the beginning of March 2020, we note a marked decline in stock markets (with less extent China). In particular, the S&P 500 dropped 10.79%, the Shanghai composite index decreased by 1.75%, the STOXX Europe 600 dropped 19.29%, and the Nikkei 225 index fell about 7.3%. This sharp collapse starts following news on the international propagation and other news regarding hopeful developments in China with respect a drop in new cases and the gradual resumption of production. This can explain the improved performances of Chinese shares in March compared to the equities of Europe and the United States. With the propagation of the virus, there is a sharp decrease of risk appetite. The dollar is losing its appeal as a safe haven. Investors are responding to the spread of the coronavirus by betting on several rate cuts from the Federal Reserve bank (Fed).
Beyond the aforementioned statstics, we want here to draw attention to the lessons to be learned from this unprecedented crisis. Indeed, there are many lessons to be learned, right now, from the COVID-19 crisis in order to better overcome it and try to predict possible following crises. The virus is not the main cause of the current crisis, which is a crisis of globalization and the way our economic system as a whole works.

It is a catalyst, highlighting the intrinsic inconsistencies and dysfunctions of the production system.

Even before Coronavirus, we have already witnessed a marked slowdown in economic growth in most developed countries. This slowdown has not been sufficiently taken into account by the financial markets, which have continued to rise, encouraged by the accomodative monetary policies4 of major central banks. However, the causes behind this sharp decline in growth are well known and are mostly objective. These include among others the decreasing Chinese imports, the heightened US-China trade war, Brexit, tensions between Iran and the United States and tensions in the Middle East region and other parts of the world. All of this has created situations of growing uncertainty. In other words, the ingredients for a major crisis are still there. The coronavirus is the spark that exploded this crisis.

The Coronavirus did not create this high uncertainty that we have known for a number of years, but it has accentuated, exacerbated and multiplied it. The panic generated by this pandemic is mainly due to the fact that little is known about the virus. We do not know its mode of dissemination in general, the appropriate infection prevention and control measures as well as its morbidity. We do not know especially if it will mutate into a more spreading form, as was the case of the Spanish flu which killed more than 50 million between 1918 and 1919.

The unbridled pursuit of profit has led multinational companies to create a complex and fragmented value chain system, which does not take into account the carbon footprints and the working conditions, which are very often difficult, in developing countries. Not to mention the over-reliance on world’s workshop (China). Strategic products and essential inputs for society are produced in subcontracting basis in this country, which can be problematic when a production breakdown occurs, as is the case with the current crisis. Today, the debt ratios of several countries are very high (see Figure 6). This would not give these countries the flexibility they need to effectively respond to changing economic circumstances.


When we look at central banks, the situation seems not much better. Indeed, interest rates in most of the concerned countries are around 0%. Even if the situation on the United States is different due to the fact that the dollar plays the role of reserve currency, but we shouldn’t ignore that the shrinking of the Federal Reserve’s (Fed) balance sheet – so-called quantitative tightening5 -is very worrying.

There remains the pursuit, but this time on a larger scale, of conventional policies, of buy-back securities of companies to provide them with liquidity, well known as ‘quantitative easing’. However, there is the question of the effectiveness of these central bank policies. It is obvious that much of this cash is not going to the real economy. Banks do not direct these colossal amounts of money to small and medium-sized businesses. With the disruptive coronavirus crisis, it may be time to rethink their use and redirect them towards the financing of small and medium-sized businesses, or those that create long-term jobs that protect the environment. Not to mention a massive investment in the health sector. The World Health Organization (WHO) must have more human and material resources and a coercive policy for more efficiency. It is abnormal that this organization is endowed with less power than the International Federation of Association Football (in the sport field) for example. It should not be forgotten that the current crisis is linked to hygiene problems (a wholesale market in Wuhan). It is therefore time to take this issue seriously. Indeed, almost half of the world’s population does not have access to effective hygiene services, which would have an adverse impact on health and, ultimately, on economic growth. Investing in health and the environment is the main lever to restore the confidence currently lacking on financial markets and economic players (companies, citizens, non-governmental organizations, etc.).

Further reading

For more details about the financial and economic effects of coronavirus, interested readers can refer to the full version of our paper available at:

1 IRMAPE, ESC Pau Business, Pau, France ; Email :

2 Universite de Pau et des Pays de l’Adour, E2S UPPA, CATT, Pau, France ; IRMAPE, ESC
Pau Business, Pau, France ; E-mail :

3 One can cite the case of Italy, which was abandoned by the European Union (EU) in this time of need. It was left alone in the face of this deadly virus. Countries in the EU have failed to give medical assistance and supplies to Italy during an outbreak. No aid was given to this country from the EU members who are themselves engulfed in their own problems.

4 An accommodative monetary policy happens when a central bank expands the overall money supply to boost the economy when growth is declining (as measured by GDP).

5 Quantitative tightening is monetary policy applied by a central bank to reduce the amount of liquidity within the economy.

For Tomorrowers ®

Ajoutez un commentaire

Laisser un commentaire

%d blogueurs aiment cette page :