Although global economic growth forecasts are cut sharply, food demand shou...
2020-06-22 5 ENGLISH REPORTS
These restrictions represent a challenging combination of a supply and a demand shock. The supply shock arises from the intentional constraints on economic activity: restaurants, shopping malls and, in some countries, factories are closed down to prevent the spread of the virus. To a small extent, this decline is compensated by greater e-business activity as well as some other sectors of the economy, most notably a rise in the sales of medical equipment. On the whole, however, the restrictions substantially constrain the overall supply-side capacity.
The demand-side shock arises from the impact on consumers’ disposable income and corporate investment activity. The exact extent of employment loss is determined by country-specific labour market institutions, but in every country lockdowns have been accompanied by a historically unprecedented spike in unemployment. In the United States, initial unemployment claims have been recorded at more than 26 million2 since the start of the lockdown, indicating that the rate of employment loss is around 10 times faster than it was in the aftermath of the fall of Lehman Brothers in 2008. Similarly in the United Kingdom, 1.4 million3 new claims for unemployment benefits have been registered since mid-March when the government first urged people to stay home. Early studies suggest that unemployment could rise to almost 21%4 of the total workforce, higher than the ratio recorded during the Great Depression of the 1930s.
Registered unemployment numbers might even understate the impact, given the importance of informal and “gig economy” employment in the exceptionally badly hit tourism sector. Those who have lost their jobs are concentrated in the lower income segments. Even with unemployment support, they are likely to cut their spending beyond what the restrictions would mandate. Similarly, given the uncertainties of consumer demand, companies hold back investment projects even if social distancing measures would still allow the investment.
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