Question

3. Make your assessment of the following “hot” topics in international economics: (i) what policy mix to be used at national and global levels to address effectively negative economic consequences of the COVID-19 crisis, (ii) economic consequences of the COVID-19 crisis for oil-exporting countries and policies to be applied by the authorities to mitigate this external shock, (3 pages) I

Answer 1

i)

No doubt that the pandemic has ripped apart the world economy. As the cases are increasing day by day, the consumer pessimism just cements up. In a national level, expansionary fiscal and monetary policies are needed to counter this adversity in the economy. Consumer spending has dropped to all time lows, therefore government must step in and reduce interest rates, tax rates and increase spending to provide the required infrastructure needed by the manufacturers in these trying times.

As far as global scenario is concerned, international trade hasn't been the same. Countries are reluctant to trade internationally in fear of spread of the virus viz the consignment. Although this might sound a bit bizarre, the actual reason is that the domestic has fallen meaning the consumers are not interested to consume exports at this point of time. Same goes with almost every nation. The commodities mainly traded during these times are PPEs, Medicines and other equipments needed for the efficient testing and treatment of the disease.

ii)

Oil exporting countries have been a victim of the demand shock due to the pandemic. As governments have posed lockdowns extensively, the demand for fuel plummeted and the oil exporting countries which primarily rely on oil for revenue have faced consequences like overwhelming production leaving no space to store. And this is the reason why the crude oil price touched down negative values, which was leveraged by countries like China. In a nutshell, the demand shock left the oil exporting countries in a sort of bother.

Authorities have already pushed some policies including production cuts as long as the normalcy isn't achieved. Production cuts mean that the storage can be more efficiently used and the prices gradually increase. Apart from this, Government spending on other sectors can be boosted up to promote employment and the overall output in the Gulf. This offsets the high reliance of the Gulf in oil to run the economy.

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