One of the major effects of COVID-19 that we constantly hear about is the Economic impact it is having and will continue to have for years to come. TalksForTeens looks at some of the most talked about economic aspects and gives a summary of key terms in the context of COVID.
Indirect Costs: These are the additional costs (not obviously related to the activity) that are associated with behaviours adopted to avoid becoming infected or passing on the virus. An example of an indirect cost would be lack of access to routine healthcare, such as a dentist, during the lockdowns.
Supply Shocks: A sudden decrease in supply because of closing factories, businesses and so on, resulted in supply shocks. The immense disruption caused by the lockdown measures worldwide, led to production not being utilised to full capacity. From a lack of milkshakes at McDonalds to queues at fuel stations, disruptions to supply chains meant there wasn’t enough, to meet demand.
Demand Shocks: A dramatic rise or fall in demand is known as a demand shock. Who remembers when everyone was panic buying loo roll and supermarket shelves became empty?
Knock-on Effects: Since businesses today are run on efficiency and things falling into place ‘just in time’, any change to deliveries of, say raw materials, can knock everything off course. A delay in the delivery of microchips for example – whether it’s caused by factory closures, by a shortage of workers or by shipping delays - has a vast ripple effect on the end products (electronic devices).
Inflation: This happens when things are more expensive than they used to be(typically a basket of goods is taken as a measure). It’s not specific to one good or service. In the US in October, the inflation rate was the highest it has been in 30 years at 6.2%; the reason: jobs being re-instated, wages rising and generous government spending, amongst other factors. Also, high energy prices and big demand for second-hand cars. What? Read on....
The rise in the price of used cars was initiated by a shortage in microchips. How, you may ask? It’s very inter-related -- the shortage leads to a slowdown in the manufacturing of new cars which in turn, leads to an increase in demand for used cars (and ultimately the price of used cars goes up).
Furlough: This is a word we have heard a great deal. In the UK the government pledged that workers (not including the self-employed) who were unable to work due to the restrictions, could be paid up to 80% of their regular wages through the Coronavirus Job Retention Scheme (up to a maximum of £2,500 a month). These payments, made to some 11.6 million people, were backed by the government – costing the state an estimated £70 billion pounds.
Government Borrowing: The government borrows when it spends more than its income. In 2020/21, there was a shortfall of £303 billion (14.5% of GDP). This amount is a peace-time record, caused by two main factors: firstly, the government spent a great deal of money on things like Furlough and to support households & businesses and secondly, the restrictions meant that the economy really suffered, resulting in less income from taxation.
It’s very difficult, if not impossible, to work out the overall toll on the economy of all the restrictions resulting from the pandemic.
However, on the bright side, the IMF estimates that global economic growth will be a healthy 4.9% in 2022. Meanwhile, inflation is another factor that’s being closely watched, after the sharp rises last year.
This TalksForTeens guide will equip economists to follow the inevitable movements and interventions we will be hearing lots about.
Recommended Links:
Covid: What impact has the furlough scheme had? - BBC News
World Economic Outlook, October 2021 (imf.org)
Inflation has risen worldwide recently with U.S. increase among largest | Pew Research Center
The impact of COVID-19 on potential output in the euro area (europa.eu)
The supply-chain crisis: what’s going on? | The Week UK
The UK’s coronavirus furlough scheme, explained | WIRED UK
How does Covid-19 affect economic activity and inflation? | Bank of England
Inflation hits 10-year high as energy, fuel and clothing costs jump - BBC News
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