ECN-302 Report

Topic: The Impacts Of Covid-19 on global

Submitted to:
Mr. Md. Kamrul Islam
Senior Lecturer,
School of Business.
Independent University, Bangladesh.

Submitted by:
Group No: 7
Md. Enamul Kabir ID: 1810095
Niashat Saiyara Chowdhury ID: 1821663
Nabin Raj ID: 1821529
Md. Asfaq Uddin ID: 1721529
Course Name : Intermediate Macroeconomics
Section : 01
Submission Date : 25 thJuly, 2018
Semester : summer 2020

Department Of Economics
School Of Business

Independent University, Bangladesh 1

25th of July 2020

Mr. Md. Kamrul Islam

Course ID (ECN-302, Section-1)

Independent University, Bangladesh (IUB)

Subject: Letter of Transmittal for The Intermediate Macroeconomics-302 report.

Dear Sir,

With due honor and respect I would like to say that I, Md. Asfaq Uddin want to submit my research report. This was
a Research and group study on the impact of Covid-19 pandemic on global economy.

We did our research and prepared the report based on the data collected from research, articles and website through
questionnaire survey, observation methods. This was an enormous Experience for us and we have learnt a lot about
the country’s Economy, policy and Business strategic factors on impact of covid-19.

We highly appreciate and acknowledge this overall effort of IUB for arranging this sort of course.

I sincerely hope that this report meets your approval and I will be glad to provide you with any Clarification if
required.

Thanking you.

Sincerely,
Md. Asfaq Uddin (On behalf of Group-7)
ID: 1721529

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Abstract
The possibility of a worldwide influenza pandemic in Current situation concern for many countries
around the globe. Many predictions of the economic and social costs of a modern-day influenza
pandemic are based on the effects of the influenza pandemic of 1918.

This report begins by providing a brief historical background on the 1918 influenza pandemic, a short-
lived, but tragic event that has all but escaped the public’s consciousness today.

Detailed influenza mortality statistics for cities and states, including those in the Eighth Federal Reserve
District, are presented. These data provide insight into mortality differences based on race, income and
place of residence.

The Evidence on the economic effects of the 2020 Covid-19 are reported using newspaper articles
published during the pandemic. There is also a survey of economic research on the subject. The
information presented in this report and information provided in two prominent publications on the
Covid-19 pandemic are then used to formulate a list of the likely economic effects of a modern day
coronavirus pandemic.

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 Topic Sub-Topic Page

1 Introduction 4

2 Methodology, transmission 5-7

2. 3 Scenarios 7

3 Impacts of COVID-19 7-10

3.1 Macroeconomic impacts 7

3.2.Trade impacts 9

3.3. Employment: 10

4 Pandemic and Bangladesh 12-14

4.2 Economic growth and GDP 12

4.3 Declining Remittance Inflows 13

4.4 Bangladesh and Crisis: 14

5 15
Conclusion:

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1. Introduction

Since the COVID-19 outbreak was first diagnosed, it has spread to over 200 countries and all U.S. states.
The pandemic is negatively affecting global economic growth beyond anything experienced in nearly a
century. As the coronavirus emerged in China and spread globally, authorities have acted to limit its
spread. Experience with similar diseases reveals that while the human costs are significant, the bulk of
the economic costs are due to the preventive behavior of individuals and the transmission control
policies of governments (Brahmbhatt and Dutta, 2008). Current experience is no different. As the virus
spread internationally, many countries have already taken or will eventually take action to limit the
spread, through social isolation policies, such as shutting educational institutions, limiting work and
restricting the mobility of people. The preventive actions have had an immediate and significant impact
on all economies, and through trade and tourism, on partner economies. This paper focuses on four
channels—i) the direct impact of a reduction in employment; ii) the increase in costs of international
transactions; iii) the sharp drop in travel; and iv) the decline in demand for services that require
proximity between people. We consider two scenarios: a global pandemic and an amplified global
pandemic.

In the case of the global pandemic, it is assumed that countries bear only one-half of the impact of the
full China shock. In the case of the amplified global pandemic, the shocks are uniform across all
countries. A baseline global pandemic scenario sees GDP of the world fall by 2 percent below the
baseline, of developing countries by 2.5 percent, and of industrial countries by 1.8 percent. The declines
are nearly twice as large in an amplified pandemic scenario in which containment is assumed to take
longer. It is still too early to make an assessment of the impact of the virus based on full statistical
evidence. High frequency data are providing some indicators, but it is hard to assess the depth and the
breadth of the pandemic as it spreads, and to precisely estimate how long it will take countries to return
to normal activity levels. This paper seeks to illustrate the transmission impact of COVID19 on output
and trade in different scenarios. The results presented here should be regarded as scenario analyses, not
as projections. The implemented shocks are illustrative and based on previous episodes of global
epidemics or on preliminary data. The assumptions on the spread of the disease are not grounded in
epidemiological projections, they do not take into consideration the quality of the health systems in the
affected countries, transport connections to affected countries, and health policy responses to the
outbreak. The model incorporates the decline in demand due to reduced production and incomes but
does not fully capture the independent contraction in demand, except for the reductions in tourism and
other services that require close human contact. It also does not include the decline in investor
confidence and any financial repercussions. We capture some aspects of global value chains trade, but a
fuller analysis will require a richer data set. This analysis will evolve as we fine tune assumptions in line
with early impacts and evaluate potential scenarios of the spread of the virus.

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2. Methodology, transmission channels, and scenarios

2.1 Global computable general equilibrium model

The model has been configured for a short-term closure with the following assumptions:

• Production elasticities have been reduced to near zero, so there is little substitution possibility across
inputs in production.

• In order to capture the typically durable relationship within global value chains, trade elasticities for
goods have been reduced from their standard values to represent the short-run inability to replace
imported components and final goods with products from other countries. The elasticity between
domestic and imported goods has been set to 0.4. The elasticity of substitution across import sources
has been set to 0.8.

• Labor supply is exogenous, while wages adjust to equate demand and supply of labor. The return to
capital is fixed, while supply of capital is endogenous.

2.2 Transmission channels

The outbreak of pandemic Covid-19 all over the world has disturbed the political, social, economic,
religious and financial structures of the whole world. World’s topmost economies such as the US, China,
UK, Germany, France, Italy, Japan and many others are at the verge of collapse. Besides, Stock Markets
around the world have been pounded and oil prices have fallen off a cliff. In just a week 3.3 million
Americans applied for unemployment and a week later another 6.6 million people started searching for
jobs. The shocks have been divided into four sets, but all are assumed to occur simultaneously, the final
shock encompasses all shocks. The duration of the shocks is currently unknown, though, based on prior
events, it is likely to last from 8-12 weeks and most likely unsynchronized across countries.

1. The first shock is a drop in employment by 3 percent below the baseline. With lower availability of
labor, we would expect wages, ceteris paribus, to rise, while return to capital is unchanged under our
assumptions. Lower labor also means lower demand for capital, as firms need a combination of labor
and capital to produce goods and services. Underutilization of capacity takes place due to factory
closures (workers stay home, leaving capital and natural resources idle) as well as social distancing
forcing workers to stay at home. Due to higher rates of contagion, immediate unemployment
consequences of COVID-related business closures and negative demand shock, we conservatively
assume the underutilization of the labor force to be 3% on average over the whole year across all
sectors of the economy. There is a lot of uncertainty surrounding these assumptions, and the country-
specific employment effects will depend on the duration and intensity of the pandemic and containment
measures, the sectorial composition of employment, and the flexibility of the labor market.

2. The second shock (cumulative with the supply shock) raises the international trade costs of imports
and exports by 25%. The shock is applied across all goods and services. Trade costs arise when goods
cross borders. The assumed increase in transport and transactions costs in foreign trade is driven by
additional inspections, reduced hours of operation, road closures, border closures, increases in transport
costs, etc. Evans et al. (2015) estimate that the outbreak of Ebola could lead to an increase in trade costs
of 10%. Since COVID-19 is affecting more countries and the containment measures seem more severe

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due to the efforts to contain the virus, we amplified the shock increasing international trade costs of
imports and exports to 25%.

3. The third shock entails a sharp drop in international tourism. This is captured via a 50% consumption
tax on international tourism-related services, such as transport, accommodation, etc. This generates a
typically small revenue for the relevant countries that is rebated back to households with a lump sum.
There are a number of ways to affect demand choices by increasing the cost of purchasing the relevant
good. The solution in this case has been to impose export taxes that directly affect the price of the
targeted services. The revenues generated by this tax are rebated back to households. The export tax is
applied to both outbound and inbound (tourist) services that include: accommodation, food and service
activities; water, air and other transport; and recreational and other services.

The effects of COVID-19 in the tourism, hospitality and recreation sectors have been unprecedented. In
the accommodation and lodging sectors, quarterly revenues are down 75%. Travel agents saw a
slowdown in bookings of 50% in March of 2020. Airlines worldwide are expected to lose $113 billion in
revenues for 2020. In the peak of the outbreak, 70% of scheduled flights in China have been canceled. As
of mid-March 2020, international travel has ground to a halt, with the World Travel and Tourism Council
(WTTC) estimating that global travel would decline at least 25 percent in 2020. To capture the effects of
the drop in tourism, hospitality and recreation services, we implemented a 50% tax on the export of
trade-related services, resulting in a drop in exports of tourism services at a global level of 20-32%.

4. The fourth shock represents a demand switch by households who purchase fewer services requiring
close human interaction, such as mass transport, domestic tourism, restaurants, and recreational
activities, while redirecting demand towards consumption of goods and other services. Demand for the
targeted services is assumed to drop by 15%. This results in a reallocation of household demand across
sectors, while total expenditures are still driven by previous shocks and relative prices of goods in the
consumption basket. It is difficult to estimate the impact of social distancing and overall decline of
economic activity on those selected sectors, but anecdotal evidence suggests that it is likely to be
significant. With social distancing measures and closures of nonessential businesses, the bookings

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through Open table network declined by 100% in the second half of March (data form the United States,
the United Kingdom, and Germany). Depending on the length of the business closures, the annual
impact could vary drastically. The decline of 15% at an annual level seems like a middle of the road

estimate.

Figure 1. Implications of the COVID-19 as implemented in the Envisage model.

2. 3 Scenarios

We start by considering the effects of COVID-19 on world supply capacity, trade costs, international
tourism, and demand switching, as discussed above. Then we study the consequence of similar shocks
under the “amplified global pandemic” scenario. “Global pandemic” scenario In the global pandemic
scenario, we aim to capture relatively rapid recovery and limited contagion, where the shocks are
implemented to the full degree in China, but other countries experience shocks amounting to only half
the shocks described below:

 Underutilization of labor by 3 percent across all sectors in the global economy results in
declining capital usage.
 Trade costs of global imports and exports increase by 25%, applied across all goods and services.
 Sharp drop in international tourism (captured via a 50% tax on inbound and outbound
touristrelated services such as transport, accommodation, etc.).

3. Impacts of COVID-19
3.1 Macroeconomic impacts

The global pandemic scenario assumes that the pandemic hits China the hardest, but also hurts other
countries, so we use it as an example to explain the impacts on other countries. The global pandemic is
expected to reduce Chinese GDP by 3.7% (all percentage changes are reported in relation to the
baseline). The impact on China becomes progressively more negative as impacts of the shocks
accumulate. First, the supply shock reduces GDP through reduction in employment (and capital) leading
to lower production and exports, as well as lower imports due to lower income of households and
shrinking production. Second, with higher trade costs, the price of a unit of imports and exports
increases and the competitiveness of Chinese production declines due to higher costs of exporting and
higher costs of inputs; final goods’ prices also increase. The rising trade costs represent a productivity
loss, since additional inputs are needed to bring goods to their consumers, instead of being available for
consumption and investment. Further, inbound and outbound tourism decreases significantly, resulting
in further decline of Chinese GDP and exports. Finally, with the composition of expenditures changing
with lower demand for sectors hit by social distancing (transport, hospitality) and relatively higher
demand for goods, the composition of output tilts towards manufacturing. Loss of competitiveness and
lower income result in a decline of total exports by 3.5%, while imports decline by 3.2 %. China’s exports
of tourist-related activities decline by 29%, while imports of tourist-related activities decline by 37%.
Real consumption by households declines by 7.2%. Global GDP is expected to decline by 2.1%, while
developing countries’ GDP is expected to decline by 2.5% and high-income countries by 1.9%. The
biggest GDP losses under the global pandemic scenario are expected in East Asia and Pacific (EAP)

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countries due to their relatively deep integration through trade and direct impact on tourism, e.g.
Cambodia (3.2 %), Singapore (2.1 %), Hong Kong SAR, China (2.3 %), Thailand (3 %), Vietnam (2.7 %), and
Malaysia (2.1 %).

Exports at the global level are expected to decrease by 2.5%. China, considered to be the “world’s
factory”, suffers a decline in production across all sectors and goods, due to an underutilization of labor
and capital, and, together with an increase of its trade costs, increases the import costs for the rest of
the world, which translates into a decline in global exports. China sees a contraction in exports of 3.7%.
Vietnam sees a decline in its total exports by only 1%, because it benefits to an extent from the gap left
by the decrease in Chinese exports. Some countries in the East Asia and Pacific region are the most

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affected in terms of export declines, with Hong Kong SAR, China, suffering the biggest losses (5.2 %),
followed by the Lao People’s Democratic Republic (3.6%), Cambodia (3.9%) and Singapore (4.4%).
Selected countries see an increased demand for their tourism exports due to diversion of tourism from
the EAP region, with some flows increasing by 2%-3% between countries outside the EAP region, but in
all countries total tourism flows decline across the board, with exports from the EAP region declining by
about 30%. These small bilateral tourism export gains disappear, as the shock spreads from China and
East Asia to other parts of the world.

Table 1: GDP implications of various scenarios

In our illustrative simulations of the shocks are identical across countries, and the deep recession under
the amplified global pandemic scenario results in negative impacts on exports across all sectors and
most destinations. The country-specific results are driven by the initial composition of output and
exports by sector and destination, but also by the country’s level of openness and relative changes in the
competitiveness of the exporting country and its trading partners.

Under the amplified global pandemic scenario, US exports are expected to decline by almost $85 billion
(2014 dollars) The most impacted are exports of services, especially tourism and services requiring face-
to-face interaction. The biggest declines are expected in exports to Europe and EAP, driven by recession
and lower demand in those regions, the main destinations for US exports in services.

In the case of China, the biggest decline of exports is registered in manufacturing goods, and in Chinese
exports directed to the United States, Europe and EAP countries There is a small increase in exports to
ECA and MENA countries, where Chinese products become relatively more competitive than products of
other suppliers, and where domestic producers cannot fully satisfy the domestic demand.

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Finally, in the case of Thailand, the biggest impacts are on exports of manufacturing goods and services,
with very little impact on agricultural goods or natural resources. Services exports to the United States
and Europe register the biggest declines, while manufacturing exports to China and EAP partners take
the biggest hit.

Figure 4a. Impacts on US exports in the amplified global pandemic scenario (difference from the
benchmark)

Figure 4b. Impacts on Chinese exports in the amplified global pandemic scenario

3.3. Employment:

The COVID-19 pandemic is expected to cause huge job losses for migrant workers and thus affect
remittance flows. According to the Institute for Public Policy Research, migrant workers are particularly
likely to work in accommodation and food services, one of the most affected sectors in the COVID crisis.
The World Bank projections found that global remittance flows would decline sharply by 20 per cent in
2020. Europe and Central Asia will experience the largest fall of 27.5 per cent, followed by Sub-Saharan
Africa (23.1 per cent), South Asia (22.1 per cent), the Middle East and North Africa (19.6 per cent), Latin
America and the Caribbean (19.3 per cent), and East Asia and the Pacific (13 per cent).

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Worldwide FDI flow is expected to drop by about 35 per cent due to travel bans, disruption of
international trade, and wealth effects of declines in the stock prices of multinational companies. About
94 per cent of the world’s employed workforce are living in countries with some sort of workplace
closure measures in place while around one-fifth of them live in countries that have closed all

workplaces apart from those deemed essential. The decline in working hours around the world in the
first quarter of 2020 is equivalent to approximately 135 million full-time jobs losses, which would
increase to 305 million in the second quarter. The crisis is hitting young workforce, especially young
women, more severely than any other group. The International Labor Organization (ILO) survey found
that more than one in six young people have stopped working since the onset of the crisis. Young people
who remain employed experienced a 23 per cent cut in their working hours.

The COVID-19 pandemic is likely to cause an increase in global poverty for the first time since the 1990s.
According to a UNU-WIDER estimate, the number of people living in poverty could increase by 420–580
million. The World Bank estimates that the share of the population living in extreme poverty (incomes
less than $1.90 per day) will rise by 40-60 million. The United Nations, however, put the number in the
range of 84–132 million. According to the Save the Children and UNICEF, the COVID-19

pandemic could push an additional 86 million children into household poverty by the end of 2020.

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4. Pandemic and Bangladesh Economy:
4.1 The Economy:

Over the last decade, the economy has been growing at around 7 per cent per annum, yet 20 per cent of
the population earn less than US$5.00 a day, 9.2 per cent of employed in the country earn less than
US$1.90 a day and only 15 per cent of Bangladeshi workers earn over US$6.00 a day. This is the pre-
pandemic employment and wages situation in the country. Now the situation has worsened
significantly.

Nearly 10 million Bangladeshis are working in foreign countries, mostly in the Gulf countries. Now the
depressed oil prices affecting the Gulf states and lockdowns imposed in Europe since April are already
causing serious economic slowdown in these countries having a negative impact on expatriate
Bangladeshi workers abroad.

On May, 9, the World Health Organisation (WHO) declared that the pandemic situation globally was
'worsening'. Amid this worsening global pandemic situation, the World Bank (WB) in its updated Global
Economic Prospects Report projected that the global economy would contract 5.2 per cent this year
(2020) and suggested a further downward revision was possible. That will cause the deepest recession
since a 13.8 per cent global economic contraction in 1945-46 at the end of the World War II.

4.2 Economic growth and GDP

Economic slowdown in Europe and North America is of particular concern for Bangladesh as these are
the principal markets for Bangladesh's principal export product -- readymade garments (RMG). These
two regions are also expected to continue to slowdown at least for next six months or more and that
has implications for 4 million workers in the RMG industry in Bangladesh.

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Also, RMG generates close to $30 billion in exports accounting for 83 per cent of total exports and 14
per cent of GDP. Now the industry is in deep crisis as exports plummet due to the cancellation of
purchase orders from Europe and North America. According to the Financial Express of May 9,
merchandise exports dropped by 61.57 per cent equivalent to $1.46 billion in May this year compared to
the same month last year (2019).

The nationwide shutdown which has been extended till May 5 has led to shocks for both the formal and
informal sectors. According to the International Monetary Fund, the real GDP growth of Bangladesh is
projected to decelerate to 2.0% in FY 2019-20 driven by falling readymade garment exports, lower
private investment growth and wider disruptions due to COVID-19.

4.3 Declining Remittance Inflows

Remittances from Bangladeshi workers accounted for $15.5 billion to the national economy in 2018.
Now host countries in Europe and the Middle-East are themselves facing economic slowdown causing
large-scale layoffs of migrant worker. Most of them are now returning home to Bangladesh and on
return heading towards their country homes exacerbating the health crisis.

The impending economic recession hitting the Gulf and Western countries places a big threat to the
wage earners’ remittance inflows, one of the main pillars of economic growth. The economic shutdown
in these countries has been already affecting the remittance of expatriates, showing a downward trend
in the first quarter. Many of the migrants have already lost their jobs which will further affect the rural
economy of the country owing to the dependence on remittance.

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Bangladesh has a greater reliance on trade relative to the other countries in the region, making the
country more exposed to changes in the global economic environment due the current pandemic. The
impact on the Bangladesh economy due to fall in export earnings from RMG and other exports and also
fall in remittances is likely to be very significant. Importantly, foreign exchange earnings of the country
are expected to drop by about 25 per cent which in monetary terms is estimated at more than $4
billion.

In early March, the Asian Development Bank (ADB) estimated that the Bangladesh economy would
contract by 1.1 per cent wiping $3.02 billion off its GDP. The World Bank (WB) and the International
Monetary Fund (IMF) predicted a decline of just over 2 per cent during the current fiscal year. Their
prediction appears to be fairly realistic given the rising numbers Covid-19 infections and fatalities the
country is currently experiencing and the reimposition of lockdowns. The Economic Intelligence Unit
(EIU) estimate is even more dire, predicting a decline of 4 per cent of Bangladesh GDP next year.

4.4 Bangladesh and Crisis:

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Bangladesh is now categorised as a least developed country (LDC). But the last three decades have been
marked by the country achieving significant economic growth and poverty reduction. In recent time the
rate of growth has been hovering around 7-8 per cent per annum which has propelled Bangladesh to be
eligible to become a developing country by next year (2021). Now the economic downturn caused by
the Covid-19 pandemic is likely to put that aspiration on hold.

Faced with the looming economic crisis, on March 25, Prime Minister Sheikh Hasina announced a
bailout/stimulus package of Tk 50 billion ($600 million) to support export oriented industries. The
Prime Minister on April, 5, further announced another stimulus package of TK 67.7 billion. Taken
together these stimulus packages account for about 3 per cent of GDP. The IMF also provide a loan of
$732 million. But even well designed stimulus packages can be rendered ineffective, if Bangladesh can
not overcome and go past the all pervasive systemic barriers in utilising the stimulus packages.

So far, there have been no runs on basic essentials of life in Bangladesh as happened in many other
countries. Bangladesh also has greater social resilience than richer countries. People in Bangladesh, in
general, rely less on the state and have far more experience in dealing with natural disasters. Also,
strong social bonds provide help to people to weather through difficult times. Bangladesh is also food
self-sufficient largely helped by high tariff barriers. The country also has a long established government
supported food distribution system geared for the poor. As such makes the country more resilient to
disruptions in global food supply chains.

Bangladesh is now facing a critical period in its economic history and there is not much space for
exercising fiscal prudence at this critical point in time. Fiscal policy will have to play a far more decisive
and significant role in view of the fact that the scope for using monetary policy to stimulate the
economy has become ineffective despite falling real interest rates. As the economic recovery process
can turn out be a long drawn-out process, the government must continue with the fiscal stimulus until

Due to the economic halt in place, millions of people are at unprecedented risk of losing jobs in several
economic sectors such as readymade garments, dairy, poultry, transportation, tourism, etc. Readymade
garments industry has already been projected to lose USD 1.6 billion due to the cancellations of orders.

5. Conclusion:

COVID-19 is spreading fast across the globe. At the time of writing,6 the WHO reported cases of COVID-
19 in 206 countries with the tragic deaths of more than 40,000 people. The primary focus is necessarily
on containment, treating the ill and helping communities cope with the epidemic. Our illustrative
scenarios indicate that the potential loss of income in affected countries could be significant, with global
GDP declining by up to 3.9%, and developing countries hit the hardest (4% on average, but some over
6.5%). Governments will need to offer significant support to affected businesses and households.

REF:

http://documents1.worldbank.org/curated/en/295991586526445673/pdf/The-Potential-Impact-of-
COVID-19-on-GDP-and-Trade-A-Preliminary-Assessment.pdf

https://databd.co/stories/covid-19-in-bangladesh-a-visual-guide-to-the-economic-impact-11064

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