Effects of Covid 19 on globalisation of the economy

Uma (Lower Sixth)

Globalisation is the process of interaction and integration among people, companies, and governments worldwide. Globalisation has accelerated since the 18th century due to advances in transportation and communication technology. However, the recent Covid 19 pandemic has had adverse effects on globalisation processes. Not only has the mobility of individuals decreased, due to multiple lockdowns, the economy has also suffered. Despite this, there is promise of speedy recovery of the economy.

A global pandemic such as Covid 19 can damage the economies of many countries. It has decelerated economic growth by causing significant disruption to global trade. In 2020, global trade fell by 8.9%, the steepest drop since the Global Financial Crisis of 2008. The pandemic affected the trade of services, more than the goods trade. Services trade does not include tangible products as such, but instead payments and receipts for service-related activities such as finance, transport, tourism and so on. Services trade fell by more than 20% in 2020, almost four times

the decline in goods trade. Covid restrictions can explain this difference. Whilst restrictions hugely cut down the service sector, due to Covid restrictions, goods trade recovered faster as factory shutdowns were limited, and there was more demand for durable goods such as furniture, carpets and appliances, due to people staying at home more during the pandemic. Moreover, with schemes such as furlough and mortgage holidays during lockdown, there was more disposable incomes for some households. This allowed increased spending on these goods. On the other hand, services such as healthcare and tourism were severely disrupted. The restrictions on public gatherings and suspension of flight operations throughout the world has had a negative impact on this industry. As a knock-on effect, many businesses located in tourism hot spots have had to shut down to keep people away from the tourist spots. Additionally, many countries’ healthcare systems have been partly or entirely interrupted. The healthcare industry has taken a devastating hit due to the multiplication of Covid 19 patients and the lack of healthcare staff. Regarding the future, the healthcare and tourism sector are already seeing improvements. With the variants getting weaker, as well as readily available vaccinations, hospital patients and restrictions on travel are decreasing. This shows promising signs.

Covid has had different impacts on trade in different countries. For example, the fall in Chinese trade was much smaller than in other regions, in fact the recovery was very strong compared to many places. The surge in global demand for goods and China’s ability to reopen its domestic supply chains ahead of other countries, meant the impacts were short term.

The pandemic however has greatly impacted shipping costs, which have increased by around 350% since May 2020.

In particular, increased demand for durable goods in lockeddown economies, combined with Covid-related disruption in the ports of those countries, exacerbated the shortage of shipping containers and increased costs. Containers are key components in global trade, since most manufactured goods – including clothes, medicines, and processed food products – are shipped in them. Containers became ‘stuck’ in the US and Europe rather than returning to Asia, slowing down efficiency. The shortage of shipping containers is likely to be temporary, however, shipping costs are likely to remain high in the near future. Particularly on trade routes to developing regions, where consumers and businesses can least afford it. This is partly because routes from China to countries in South America and Africa are often longer, more ships are required weekly for these routes, leading to more ship delays on the way. Therefore, in terms of trade, the economy has suffered with increased transportation costs. Luckily major manufacturing hubs like China have been able to recover quickly, but

other economies which have not been able to do this may not experience more long-term effects.

Although Covid has negatively impacted globalisation, specifically of the economy, it has also shown that globalisation is robust. Firstly, it has strengthened the case for digitalization, for example, there has been increased elimination of paperwork in the shipping industry, including in ports. This means if we faced a similar situation in the future, we will be better prepared and more efficient, meaning the economy will not suffer as much. Furthermore, the newly released DHL Global Connectedness Index 2020, shows high levels of resilience to this pandemic, and perhaps awareness of how much humans rely on connectivity. While lockdowns and border closures have decreased global mobility, the DHL report shows that capital flows have already started to recover; trade has rebounded strongly, whilst digital information flows have surged. There are also upsides to digital technologies, with one click of a button we can deliver food, clothes, and other commodities to our doorstep, in specific businesses like Amazon have thrived from this. Companies in Entertainment services such as Netflix have also benefitted. The platform has seen subscriber numbers surge during the pandemic, as lockdowns around the world keep people at home. Almost 16 million people created accounts in the first three months of the year, the firm said. This promotes the sharing of cultures through films, boosting globalisation.

Regarding the mobility of people, the Covid 19 pandemic has been a setback for travel, tourism, and other flows, but this is not new. Prior events such as September 11 attacks in 2001, the SARS virus of 2002 and the Global Financial Crisis of 2008 have all interrupted and stalled global exchange, but the economy has since recovered. This shows much promise for the future. Overall, as displayed, Covid 19 has taken its toll on the economy, including trade, tourism, and the healthcare service. However, the pandemic has not only had negative impacts on the economy. Some industries have seen a boom, namely entertainment and communication platforms. Past situations and pandemics have also affected the economy negatively, but it has recovered. Although the service sector has been badly hit, there are already improvements. With vaccines being readily available, and the weakening of variants, there is already promise for the future. It has been over a year since the start of the pandemic and global prospects appear to be improving. According to reports by the OECD and the World Economic Forum, data shows countries – such as the US, South Korea, Japan, and Germany – are on course to recover to pre-pandemic levels of GDP per capita by the end of 2021. However, it is important to note that the effects are not this short-term in other countries. For example, both Spain and Iceland, suffered a huge blow from the collapse in tourism revenues. They are expected to operate below pre-pandemic levels until at least mid-2023. Worse still, developing countries such as South Africa and Argentina are forecast to remain below their 2019 levels until the end of 2024, or well into 2025.

Netflix usage up amid COVID-19 but analysts at odds over longterm impact | S&P Global Market Intelligence (spglobal.com)

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