In 2020, the world saw what it never imagined would happen. The biggest economies in the world crumbled as COVID-19 spread across the globe. From the biggest powerhouse economies to the smaller ones, none have been saved from the turmoil the world is experiencing.
Not a single country was prepared for these economic shocks. Neither was the US. Now, it’s the pandemic vs. the economy, and only one can survive.
But how has COVID-19 impacted the US economy in particular? A stay-at-home order might be lifesaving, but the economic repercussions are deadly.
COVID-19 pandemic has disrupted lives by causing widespread layoffs and many families are losing their only source of income.
Many businesses and companies in the US have been forced to downsize and cut their employee force due to exhaustion of resources both financial and managerial as a result of the pandemic.
COVID-19 solely has led to a whopping 7.2% increase in the unemployment rate globally. This unemployment crisis is one of the most devastating crises in recent history.
Changes in Consumer Spending
The pandemic also saw huge changes in consumer spending behavior as people were forced into lockdown.
Due to panic buying, products like Lysol, toilet papers, and disinfectants showed a huge spike in sales in the US. Hand sanitizers and PPE manufacturing companies could not keep up with the astronomic demand due to the pandemic.
Consumers were also seen moving towards online shopping platforms, which saw more and more shops shift to the home delivery system due to the increase in sales.
Products like sunscreen and cosmetics showed a sharp decline in demand causing beauty and skincare companies to lose cash due to the pandemic.
Global Supply Chains Hit: Globalization in Threat
Outsourcing and trade are important aspects of globalization. For years, companies have relied on developing countries for low-cost manufacturing and labor. This is especially true for the clothing industry, which outsources to places like Bangladesh, India, China, and Pakistan.
Before the product reaches the customers, it might travel to various countries for different parts of manufacturing, and when COVID impacted these units, the seaports saw a drastic decrease in traffic.
The low-income workers of developing countries depend on businesses from the developed world for income and economic development, while the developed countries depend on them for low-cost products. That’s how the world is interwind, or once was.
The global economy has declined to -4.9% in 2020 due to COVID-19. The domino effect of COVID-19 has led to a supply chain disruption:
- Raw materials
- Transport for supplying ahead
- Manufacturing units
Economists argue that returning to the old ways will be difficult. Vulnerabilities of globalization have been manifested during the past few months and the importance of localization has been realized.
As the movement of goods and services becomes more and more difficult, globalization has come under threat, which means the average US citizen might have to pay more for locally produced goods.
Hotels and restaurants are some of the worst-hit industries during the pandemic as global tourism has declined due to travel restrictions. The USA alone faced a loss of $155 billion as travel and hospitality related activities have fallen.
Additionally, there were many businesses tied to tourism and around 12.1 million jobs dependent on it have been lost to the pandemic.
This has had a deadly impact on the US economy, which experienced a 32.9% decrease in GDP in 2020.
The Stock Market
Despite growing turmoil, the US stock market has not crashed. In fact, the US stock market is at an all-time high. This is due to investor optimism as the vaccine was predicted to be released soon. Stock markets tend to be forward-looking and depend on speculation.
Tech companies such as Apple, Microsoft, and Amazon have shown resilience as digitization increased and online shopping took over by a storm during the lockdown. They have truly emerged as winners during the pandemic.
With Biden’s win and the announcement of the vaccine, things are looking good in the US stock market, but the same cannot be said about the rest of the economy.
So, despite the economic collapse, stock markets have a reason to believe that investor confidence is high and recovery is possible once the virus subsides.
Worse than the 2008 Financial Crisis
The pandemic has affected lives all over the world and proved to be a huge crisis.
From causing supply disruptions to imposing financial burdens on families, many experts believe the COVID-19 crisis to be worse than the 2008 financial crisis.
While there are obvious financial concerns due to COVID, the virus is also taking many lives and governments everywhere are trying to limit contraction by imposing lockdowns and limiting public gatherings, which is why the effects of this pandemic on the global economy are unprecedented and far worse than any we have already encountered.
The Takeaway: What Lies Ahead?
The recovery will be slow. It is certain that the US and global economy have been changed perhaps forever. It is time for everyone to come together and work to improve the current condition prioritizing human life first. There is light at the other end of the tunnel, our economies have gone through major damages before, hopefully, it will recover once again.