"The Impact of International Emergency Variables on the Global Economy"
Abdulwahid Ahaba presented his research on the impact of international emergency variables on the global economy at the Gate Academy celebration in May.
Introduction:
The coronavirus pandemic represents not only the human suffering faced by people worldwide but also an economic hardship for all countries. It is not just a medical virus but an economic contagion as well. At the beginning of the new year, the global economy was on a path to a promising recovery. However, since the onset of this crisis, economists have been uncertain about when it will end and when international trade will return to normal. Everything has turned upside down due to this pandemic.
On March 4, 2020, the International Monetary Fund (IMF) confirmed that economies worldwide were heading towards more recessionary and riskier paths. This pandemic differs from previous global epidemics as it has severely impacted the economies of major countries such as China, Japan, Germany, the United Kingdom, Italy, France, and the United States. These nations account for approximately 41% of global industrial exports, 65% of global manufacturing, and around 60% of the gross domestic product (GDP).
To express it in economic terms, when these countries are affected, the rest of the world catches a cold. The economies in question are the United States, Japan, Germany, the United Kingdom, China, and Korea. The United Nations Conference on Trade and Development (UNCTAD) published a memorandum on March 4, 2020, outlining the impact of the coronavirus on international trade and the resulting economic effects. The report indicates a significant decrease in the Manufacturing Purchasing Managers' Index (PMI) in China, estimated at about a 20-degree drop. This represents the most substantial decline recorded by China since 2004, implying a 2% reduction in production, causing an estimated $50 billion decline in global trade. The most affected sectors include the manufacturing of precision instruments, machinery, communication devices, and automotive equipment.
Pamela Coke-Hamilton, Head of the International Trade and Commodities Division of UNCTAD, affirmed that economies in regions like the European Union incurred losses of approximately $15.5 billion due to this crisis. Japan's losses amounted to around $5.2 billion. The United States is one of the most affected countries, with a 9.6% decrease in exports to $187.7 billion, and imports declined by a similar percentage to $232.2 billion.
The COVID-19 virus is not only a health crisis but a severe blow to the global economy, impacting international trade and causing economic repercussions in major economies worldwide.
Last March saw a surge in the trade deficit to approximately $44.4 billion, amid the coronavirus pandemic, according to the U.S. Department of Commerce. The U.S. economy contracted by 4.8% in the first quarter of this year due to the severe pressures imposed globally by the coronavirus. The U.S. Bureau of Economic Analysis confirmed that the American economy shrank in the first three months of this year at a faster rate than during the 2008 financial crisis. It was expected that if the coronavirus appeared in a country other than China, it wouldn't have had such a broad impact. However, China, being a major industrial nation, significantly influences the economies of other countries, especially developing ones. For instance, China is the largest importer of petroleum from Gulf countries, representing about 16% of the global GDP.
The coronavirus crisis created an unparalleled health crisis, leading to necessary measures to contain the virus, resulting in a global economic downturn and financial instability. The prices of risky assets plummeted to extremely low levels since the outbreak of the pandemic. The drop in risky asset prices since the spread of the coronavirus is the most significant decline since the 2008 financial crisis. Major stock markets worldwide, both large and small economies, suffered declines of 30% or more. Due to the coronavirus, pressures began to emerge on major short-term financing markets, such as the global market for the U.S. dollar.
As a result of the extreme market volatility in the past three months, there was a severe reduction in international market liquidity, such as the U.S. Treasury bond market. Unprecedented fluctuations occurred in the global financial market, where government bond prices reached remarkably high levels on March 6, 2020, while global stock prices plummeted due to disruptions caused by the coronavirus. The yield on the 10-year government bonds dropped to around 0.7%, compared to approximately 1.9% at the beginning of the current year. British and German government bonds also hit record levels in declining yield rates due to falling bond prices.
The Financial Times explained that the yield on the U.S. Treasury 10-year bonds dropped by over 0.3% at the beginning of March, marking the most substantial decline since the 2008 financial crisis. While bond yields were decreasing due to rising bond prices, global stocks were experiencing low decline rates, reflecting the impact of the coronavirus pandemic. U.S. stocks fell in early trading on the New York Stock Exchange, with the S&P 500 index dropping by nearly 3%.
During the past month, major stock indices in Europe declined by about 4%, with the STOXX 600 index experiencing a significant drop of 12% since the beginning of the year. Despite the negative aspects of the coronavirus on the world and the losses incurred by countries, it has brought about various positive aspects on both the social and environmental levels.
On the social front, the virus fostered family unity and cohesion, as families came together due to the home isolation imposed by the pandemic, leading to discussions of social issues within the family. Personal hygiene became a sacred practice for each family member, out of fear of contracting the virus. A notable positive aspect on the social level is the decrease in crime rates due to everyone's compliance with the imposed lockdown measures.
One of the significant positives of the coronavirus is its impact on the environment and the Earth. It allowed the environment to breathe better after reducing heat emissions and decreasing pollution rates globally, attributed to carbon dioxide emissions from major factories worldwide. The closure of many factories and the halt of numerous economic activities resulted in reduced pollution rates and a decrease in the ozone layer hole.
The coronavirus had a profound impact on the education system in any country. Since the crisis began to spread and infection rates increased, it became challenging for any country to continue the educational process traditionally to prevent overcrowding in educational institutions and facilities, aiming to avoid an increase in student infections. Consequently, countries turned to alternative methods to complete the educational process, with one of the key solutions being distance learning.
Another positive aspect of the coronavirus is that it opened up opportunities for remote work through the internet, such as e-commerce and other online activities. Individuals who are proficient in using technology can work from home and generate income, enabling them to live comfortably. This message will delve into studying the virus's impact on the global economy and provide recommendations for mitigating its negative effects.
**Importance of the Study**
- This study derives its significance from clarifying the concept of international emergency variables and understanding their impact on the global economy.
- The study may yield results that can contribute to providing recommendations and proposals to benefit from emergency variables and avoid their negative effects.
- Considered as a source for researchers and students seeking to understand more about international emergency variables on the global economy, this study can serve as a starting point for further research in this field.
**Study Objectives**
The study aims to:
- Define the theory of emergency variables.
- Understand the coronavirus.
- Identify the impact of the coronavirus on the global economy.
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