COVID-19: Economic consequences over the world economy and their buffering- magazine Economy and Business


author: Dejan Graorkovski

In the past month, at global level, we were witnessing major declines and volatilities at stock markets and financial markets as noted for the last time during the big financial crisis 2008-09.  While back at those times, the largest “culprits” for the occurred crisis were the financial institutions, this time the mayor factor is quite untypical. The newly occurred situation is a result of the high exponential spreading of the respiratory Corona virus (aka COVID 19) from China to Europe, and eventually in the USA. At the moment, infected are residents of around 150 countries around the world. Currently, its spreading is the highest threat for the world economy and global financial markets.

Because of such development of the situation, the WHO reached a decision to declare a state of global pandemic.

With the virus COVID19, which was detected for a first time at the beginning of January in the city of Wuhan (part of the prefecture Hubei) in China, until March 11, 2020 infected were 81.250 Chinese, and 3.253 passed away (mainly citizens of Wuhan). Right when at the end of February, the Chinese authorities managed to localize the virus spreading, it begun to spread massively through Europe, mostly in Italy and Spain, while at the moment USA and Italy are exceeding China per number of infected citizens. The statistics from Italy are terrifying, where the number of the deceased reached extreme 10.779, and almost identical is the situation in Spain. Neither the Balkan Peninsula, including our state, remained immune to this virus. Still, the number of the affected and deceased is quite smaller than the above mentioned regions.

Due to the extreme and rapid spread of the virus, for which there is still no appropriate vaccine or medicine, the state governments were forced to undertake rigorous measures aimed at preventing further expansion.

Learning from how China dealt with the virus and the recommendations by the WHO, the European and the authorities around the world introduced measures which limited movements of people and their interaction, i.e. social distancing of the entire population. At first, the education process was terminated, i.e. kindergartens, schools, faculties were closed. Introduced were limits for holding and gathering at events of closed and open nature, i.e. closed were cinemas, theatres and other facilities of such nature. Also, prohibition was introduced for operation of all catering facilities, as coffee bars, bars and restaurants. Almost all countries introduced lockdown, without possibility to enter the countries, while the commercial transport was fully stopped. The measures resulted in empty hotels, canceled tourist arrangements and landing of commercial aircrafts.

Stopping of certain economic activities, as well as prohibition of movement and citizen’s grouping undoubtedly cause damage over the entire economy. The World Bank, IMF and OECD are already calculating the damages and have drastically reduced the initial growth rates of the global economy from 2, 9 to 2, 4%. IMF has even officially declared that the global economy entered the phase of recession.

Mayor panic with the investors coming from the uncertainty related with COVID19 contributed to high share price decline at major capital markets. Main index of the largest USA companies S&P500 declined by around 25% for the first three weeks of March. Moreover, indices of the largest economies in the Eurozone fell down in red zone. The German DAX, French SAS and indices of stocks is Italy and Spain noted average decline of around 25% on monthly level, while the London FTSE 100 in the same period melted by around 18%. The negative effect of the COVID19 has not rounded up the Macedonian Stock Exchange. Namely, for two weeks only in the month of March, the index MBI10 lost 34, 5% of the value. Data at the Stock Market Exchange indicate that last time when the value of MBI10 was below the limit of 4.000 index points was in August last year.

Reduction of the global economic activity has considerably reduced the oil demand which resulted in price decline at the lowest level for the last 15 years. Accordingly, it resulted in drastically price decline of currencies in countries which generate major part of its GDP through sale of this energy source (CAD, NOK, and RUB). In addition, futures prices of industry metals, as are copper, zinc and aluminum noted decline of 17%, 10% and 12&, respectively. Initially declared indicators for the Chinese economy explicitly reflect the damage of the measures undertaken over the economy. Namely, in the first two months of year 2020, compared to the same period of 2019, the retail sale and industrial production note significant decline of 20, 5% and 13, 5%, respectively.


Introduction of lockdown by most of the countries, prohibitions for movement and grouping of citizens (social distancing), as well as the severe travel restrictions, have considerably contributed to partial or complete termination of certain economic activities. Such development of situation has drastically reduced the consumption of citizens and of companies. According to the initial statistics, the entire consumption for the month of March, at global level was reduced by 60% (if the goods are excluded) compared to the same period of last year. Most affected are service activities as are catering, tourism, commercial transport. Also, due to the interruption in the global chain of supply, it is assumed that next in line of stroke shall be automotive and electronic industry. Neither our economy remained immune to the undertaken measures for fight against COVID19, where most affected were the activities: transport and storing, facilities for storing and service food activities, art, entertainment and recreation. All these activities contribute to around 15% of the entire GDP of North Macedonia.

Nowadays, when it became clear that the global economy shall suffer tremendous damages caused by the virus, the whole world begun to define the measures (monetary and fiscal) to amalgamate the disruptive effects of the lockdown, i.e. unemployment and isolation.

Central banks at the world level undertook expansive measures to support the economies under circumstances of virus spreading. FED of the USA had at two urgent meetings within one week, reduced the referential interest rate from 0% – 0, 25%, which at the beginning of the crisis was 1, 75%. Whereby, the FED has published re-start of the program for quantitative facility, and shall accordingly in the next months purchase bonds in amount of at least 700 billion USD, of which domestic government bonds are in amount of 500 billion USD and agency mortgage bonds in amount of 200 billion USD. It was announced in total that FED shall provide liquidity of 5 thousand billion USD through various packages (as are purchase of long-term bonds), aimed at maintain stability.


European Central Bank reached a decision for implementation of pandemic package (PEPP) by which it shall purchase bonds in amount of 750 billion EUR until the end of the year. Only few days before, the ECB has increased the amount for purchase of state bonds from 20 to 120 billion EUR, so until the end of the year a liquidity of 870 billion EUR is planned for the banks in the Eurozone. This program differs from the previous because the range of securities to be purchased shall expand. It shall include purchase of commercial bills, and Greek bonds shall enter this program for the first time. Following such decisions, other central banks undertook expansive measures. Central Bank of China reduced the reserve requirement of banks for entire percentage, while the Bank of England increased by 50% the amount of quantitative facility and now its amounts 635 billion GBP. Also, the National Bank of the Republic North Macedonia undertook a line of measures. At first, the referential interest rate on treasury bills fell to 1, 75% (prior it was 2%), and also reached a number of decisions for regulatory changes that contribute to amalgamate the unfavorable effect on economy.

On fiscal measures side, the USA government adopted measures for economy assistance in amount of 2.000 billion USD. Package includes 500 billion USD as direct assistance to all citizens, in same size and amount intended to mayor companies, 350 billion USD loan for small companies, and that is the amount expected to be received by tax reduction. Furthermore, unemployed persons shall have higher benefits than the current ones, and the hospitals shall also receive direct financial injection of 150 billion USD.

Countries in the Eurozone introduced fiscal packages which in average amount around 3% of GDP. German parliament voted for crisis package measures in amount of 750 billion EUR. It is interesting to note that the German government for a first time after 2013 shall create new debt in amount of 156 billion EUR. The package is composed of 50 billion EUR as direct financial assistance for SME’s, as well as stabilization fund for crediting of the affected companies. Governments of other countries as are Spain, Italy, Great Britain and Scandinavian countries introduced fiscal facilities. In our country, measures were also adopted for facilitation of the financial burden of citizens and companies, especially in the part of postponed payment of the existing credit liabilities.

At the end, we may sum up that the governments around the world have to cooperate and, firstly, have to support the communities and individuals threatened by the virus. In line with it, they need to keep the economy alive by increasing the public investments and trade enhancement. Meanwhile, the only thing that we all can and have to do is to respect the recommendation of staying at home, so that we might have prosperous future. #Stay home

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