Article

The Global Macroeconomic Impacts of COVID-19

ARU named after K.Zhubanov

Foreign language:two foreign languages

Davletalinova Diana

The COVID-19 pandemic has caused significant disruptions in the global economy. By the end of the first quarter of 2020, the COVID-19 pandemic had brought international travel to an abrupt halt and significantly impacted the tourism industry. For many developed and developing countries, the tourism sector is a major source of employment, government revenue and foreign exchange earnings. Without this vital lifeline, many countries may experience a dramatic contraction in GDP and a rise in unemployment. Using a computable general equilibrium model (GTAP), we assess the implications of the COVID-19 crisis on the tourism sector. Depending on the duration of the global lockdown, the paper estimates the direct and indirect costs of the shutdown for 65 individual countries and regions and 65 sectors, covering the global economy. In some countries, unemployment could rise by more than 20 percentage points and some sectors could nearly be wiped out if the duration of the tourism standstill is up to one year. Further the paper puts forward policy recommendations for governments to avert the worst effects and facilitate recovery

By June 2020, COVID-19 infected over 10 million people and caused the deaths of over 500,000 worldwide (WHO1 ). Globally, the spread shows no sign of abating. Although daily cases in Europe and Western Pacific are declining, they are increasing in the Americas, South East Asia and Africa. In response, most countries have closed their borders to visitors and tourists. The UN World Tourism Organization2 reported during the second quarter of 2020 for the first time ever that 100 per cent of global destinations introduced travel restrictions. As a result, international tourism has been almost totally suspended, and domestic tourism curtailed by lockdown conditions imposed in many countries. Although some destinations have started slowly to open up, many are afraid of international travel or cannot afford it due to the economic crisis. Tourism is a critical sector of the international economy. In 2019, the tourism sector accounted for 29 per cent of the world’s services exports and about 300 million jobs globally.3 It is an important source of income and employment for developed and developing countries. The global contraction in tourism arrivals could have devastating economic consequences as some developing countries are highly dependent on tourism. In some countries, such as several small island developing states (SIDS), tourism accounts for more than half of the GDP. This paper focuses on the potential economic effects of the halt of tourism, in the short and medium term, in the major tourist destinations as well as in those countries highly dependent on tourism (as a share of GDP). In this context, special attention is placed on developing countries where the prosperity of some communities can be seriously compromised by the fall of tourism revenues. The paper considers three different scenarios to quantify the impact of the reduction in global tourism on country incomes, trade and employment using a general equilibrium model which captures the backward and forward linkages between sectors. The paper concludes with policy implications.

Tourism is one of the fastest growing economic sectors and is an important driver of economic growth and development. In 2018 there were 1,407 million international tourist arrivals, a six per cent increase on the previous year.4 Tourism receipts amounted to $1,480 billion, an increase by 4.4. per cent, higher than global GDP growth as in the previous 8 years. Passenger transport is worth another $250 billion. Tourism exports account for seven per cent of global trade in goods and services, or $1.7 trillion. In 2019, the most popular destinations were France, Spain, the USA and China. Tourism is a major source of employment globally. The labour market has some distinguishing features. The industry is labour-intensive in nature. A high proportion of the jobs are undertaken by women, 54 per cent, significantly higher than in most other sectors, and young employees, meaning the industry is seen as inclusive. However, women are more likely to be entrepreneurs in tourism than in other sectors and most women hold low skilled jobs in the tourism sector, making them vulnerable to shocks. There is also a significant amount of indirect employment in construction and infrastructure development, plus supplying food and drink and souvenirs to tourists. Furthermore, many employees have direct contact with tourists in travel agencies, airlines, ships, hotels, restaurants, shopping centres and various tourist attractions. COVID-19 is a health and economic crisis on a global scale. While little is known at this time about many aspects of the disease (such as asymptomatic transmission, preventative measures, possible treatments, the likelihood of a vaccine and long term effects), it is generally agreed that the virus is easily transmissible and that the fatality rate is low when compared to previous pandemics such as SARS, Ebola and the bubonic plague. Fatalities are heavily skewed towards older people and those with existing ailments. To slow the spread of the virus, many countries have encouraged or mandated the use of sanitary practices such as hand washing, social (spatial) distancing and isolation. Government have introduced a slew of policy measures such as targeted testing and tracing, lockdown measures, upgrading public health facilities and closure of borders. The measures have impacted many industries and the delivery of personal services, resulting in demand and supply side shocks. International tourism is among the economic sectors most impacted by the COVID-19 pandemic. The United Nations World Tourism Organization (UN WTO) estimates a loss of 850 million to 1.1 billion international tourist arrivals, $910 million to $1.1 trillion in export revenues and 100-120 million jobs, depending on whether the borders are opened in July, September or December. Most destinations were entirely closed in April and May 2020, opening only in some regions slowly for the northern summer. UN WTO projections reflect considerable uncertainty about the duration of the pandemic, in addition to the government response to support economic activity.

This paper has presented some preliminary estimates of the cost of the COVID-19 outbreak under seven different scenarios of how the disease might evolve. The goal is not to be definitive about the virus outbreak, but rather to provide information about a range of possible economic costs of the disease. At the time of writing this paper, the probability of any of these scenarios and the range of plausible alternatives are highly uncertain. In the case where COVID-19 develops into a global pandemic, our results suggest that the cost can escalate quickly. A range of policy responses will be required both in the short term as well as in the coming years. In the short term, central banks and Treasuries need to make sure that disrupted economies continue to function while the disease outbreak continues. In the face of real and financial stress, there is a critical role for governments. While cutting interest rates is a possible response for central banks, the shock is not only a demand management problem but a multifaceted crisis that will require monetary, fiscal and health policy responses. Quarantining affected people and reducing large scale social interaction is an effective response. Wide dissemination of good hygiene practices as outlined in Levine and McKibbin (2020) can be a low cost and highly effective response that can reduce the extent of contagion and therefore reduce the social and economic cost. The longer-term responses are even more important. Despite the potential loss of life and the possible large-scale disruption to a large number of people, many governments have been reluctant to invest sufficiently in their health care systems, let alone public health systems in less developed countries where many infectious diseases are likely to originate. Experts have warned and continue to warn that zoonotic diseases will continue to pose a threat to the lives of millions of people with potentially major disruption to an integrated world economy. The idea that any country can be an island in an integrated global economy is proven wrong by the latest outbreak of COVID-19. Global cooperation, especially in the sphere of public health and economic development, is essential. All major countries need to participate actively. It is too late to act once the disease has taken hold in many other countries and attempt to close borders once a pandemic has started. Poverty kills poor people, but the outbreak of COVID-19 shows that if diseases are generated in poor countries due to overcrowding, poor public health and interaction with wild animals, these diseases can kill people of any socioeconomic group in any society. There needs to be vastly more investment in public health and development in the richest but also, and especially, in the poorest countries. This study indicates the possible costs that can be avoided through global cooperative investment in public health in all countries. We have known this critical policy intervention for decades, yet politicians continue to ignore the scientific evidence on the role of public health in improving the quality of life and as a driver of economic growth.

References:

1.Aguiar A, Chepeliev M, Corong E, McDougall R, and van der Mensbrugghe D (2019). The GTAP Data Base: Version 10. Journal of Global Economic Analysis, 4(1), 1-27. Retrieved from https://www.jgea.org/resources/jgea/ojs/index.php/jgea/ article/view/77.

2.Arndt, C. and J. D. Lewis (2001). The HIV/AIDS Pandemic in South Africa: Sectoral Impacts and Unemployment. Journal of International Development 13(4): 427-49. Barker, W. H. and J. P.

3.Mullooly (1980). Impact of epidemic type A influenza in a defined adult population. American Journal of Epidemiology 112(6): 798-811