The Effects of Coronavirus on the Economy
In other words, unlike the events of the last decade, the world economy's developments after the end of the acute phase of the crisis is bound to change markedly. This kind of transitions are best described by a nonlinear hysteresis model, when the system cannot undo the changes after their direct cause has ceased to exist.
In this case, the non-linear nature of transformation is determined by the following circumstances:
- Technological shift
Crises often stimulate the adoption of new technologies and business models. For example, even the limited SARS outbreak in 2003 accelerated the spread of online shopping among Chinese consumers, which contributed to the rapid growth of the delivery services and, in particular, Alibaba company. This time, fears (allegedly false) of contamination via cash have already led to a leap in the use of contactless payments in China and similar effects will be surely observed worldwide. Forced use of online technologies during quarantine in education, healthcare, trade and customer service, as well as in management practices cannot but contribute to their accelerated adaptation, which could otherwise take years. Of course, we do not expect a universal transition to online formats, but the search for a "golden mean" in the business processes of each industry will unfold from a completely different starting point.
- Changes in the direction and volume of trade flows
Uneven recovery of national economies, transport and logistics bottlenecks, in addition to the desire to avoid elevated risks, will lead to greater localization of production processes and technological chains, changing the structure of international trade and, ultimately, country specializations, as well as the volumes and directions of movement of people and cargo.
- Change of price and structural proportions
As a number of key industries (transport in particular) have been forced to a significant extent to close down, their gradual recovery as the epidemiological situation normalizes under changing consumer behavior may be characterized by entirely new commercial parameters and, consequently, volume-price characteristics of material production and provision of services. Accordingly, companies will need to seriously adjust the structure of their production assets and employment. There will also be a major change in intra-industry and cross-industry relative prices, which, together with technological shifts, implies the inevitable restructuring of several industries and a noticeable increase in the number of bankruptcies with the redistribution of market shares.
- Socio-cultural change
As always, predicting the changes of human behavior and the corresponding shift of the consumer, savings, communication and social patterns having the most profound long-term impact in all areas of life, is the most complicated task. It is difficult to foresee what individual and social responses will prevail by the end of the period of the restriction of freedom of movement under the expected transformation of the economic environment. It should also be borne in mind that the new economic realities will require a different quantity and quality of workers, perhaps radically different from the pre-crisis standards, which also cannot but create social and, possibly, political tensions.
- Role of the State
The state will be forced to assume new responsibilities, including the maintenance of education, health care and social protection systems in the new environment. Most likely, as in the aftermath of the previous crisis, direct government involvement in a number of sectors of the economy will also be required and may last for a long time. Employment (often excessive) in the public sector of the economy, and, consequently, the fiscal burden on the population and business will increase.
- Political deglobalization
Structural changes in the world trading system will be reinforced as a result of the political trend to protect national interests and strengthen national borders. The importance of cross-border projects and international cooperation in the economic sphere will fall under these conditions; higher unemployment and increased burden on the social system will further suppress international migration and its role in shaping labor markets.