Question

Describe about pandemic (Covid-19 ) that can change the macroeconomy and how to hinder the impact of Covid-19 on the macroeconomy especially in developing country?

Answer 1

     

The impact of the Covid-19 gives shock on economies around the world for the year 2020. The results shows that the global economy will contract given the sudden stop to large swathes of activity and the resulting income loss in the manufacturing and services sectors across most developing Countries, combined with the adverse effects on financial markets, consumption, investment confidence, international trade and commodity prices. The economic fallout from the Covid-19 shock is ongoing and increasingly difficult to predict but there are clear indications that things will get much worse for developing economies before they get better

After a period of rapid economic growth, the developing countries had entered a phase of lackluster performance. Recent developments and the outbreak of the Covid-19 epidemic will push the economy into recession. Many countries are struggling to contain the spread of the Covid-19 epidemic while avoiding a dramatic decline in economic activity. It estimates the potential health costs, assesses the effectiveness of diverse containment strategies, and discusses how large the economic cost could be. The current crisis is unprecedented because it combines a fall in global demand, tighter financial conditions and a major supply shock. The developing countries needs to consider how to socialize the losses, how to prevent a collapse of the financial sector, how to protect jobs and livelihoods, and how to manage and divest the assets that will inevitably end up in the hands of the state

Developing countries face distinct pressures and constraints which make it significantly harder for them to enact effective stimulus without facing binding foreign exchange constraints. And as these countries do not issue international reserve currencies, they can only obtain them through exports or sales of their reserves. What is more, exports themselves require significant imports of equipment, intermediate goods, know-how and financial business services. Finally, the financial turmoil from this crisis has already triggered sharp currency devaluations in developing countries, which makes servicing their debts and paying for necessary imports for their industrial activity far more onerous.

The evolution of the disease and its economic impact is highly uncertain, which makes it difficult for policymakers to formulate an appropriate macroeconomic policy response. In a strongly connected and integrated world, the impacts of the disease beyond mortality (those who die) and morbidity (those who are incapacitated or caring for the incapacitated and unable to work for a period) has become apparent since the outbreak. Amidst the slowing down of the developing economies with interruptions to production, the functioning of global supply chains has been disrupted. Companies across the world, irrespective of size, dependent upon inputs have started experiencing contractions in production. Transport being limited and even restricted among countries has further slowed down global economic activities. Most importantly, some panic among consumers and firms has distorted usual consumption patterns and created market anomalies. Global financial markets have also been responsive to the changes and global stock indices have plunged.

The measures to deal with the economic crisis should start from very weaker sections. The first measure must be to protect the workers in the informal sector, who will be badly affected, and yet have little savings to tide them over the shock. In the organised sector, the objective should be to make the banks somewhat less risk averse in their overall lending, while preserving their authority to distinguish between viable and non-viable business organisations because banks plays great role in the economy of developing countries. Perhaps the best way to do this is by providing the public sector banks with additional capital, to give them a larger cushion to fall back on in case they make lending mistakes given the prevalent uncertainty. It might be harder for private banks to raise capital from the market given that they are already experiencing declines in share prices. The policymakers should prompt people to keep pumping money into economies. Even after recovering from Covid-19 pandemic the countries especially developing economies will struggle to overcome the long term financial crisis. Proper policies and actions can lead economies to overcome crisis.