What the Covid-19 Pandemic Has Meant for the Economy
One year after the Covid-19 virus triggered unprecedented lockdowns around the world, some countries are showing a semblance of normalcy. Vaccine rollouts have been a catalyst for plane tickets to be booked, more people to dine out, and workers to plan returns to offices.
Some economists are predicting a faster-than-expected rebound, particularly in the U.S., where growth is expected to power a recovery in the rest of the world. Pent-up consumer demand and accumulated savings are forecast to drive back up retail, travel and hospitality spending.
However, other predictions aren’t so rosy. Past recessions show lower-wage workers could feel the repercussions for much longer. The World Bank has also forecast that the aftermath of the pandemic could spell a “lost decade” in the global economy.
Here’s a deeper dive into the wider repercussions of the Covid-19 virus on the economy.
How the Coronavirus Is Affecting the Economy
In the second quarter of 2020, U.S. gross domestic product–the value of goods and services produced by the country–fell by an annual rate of 33%, the steepest drop in more than 70 years of record-keeping, according to seasonally and inflation-adjusted figures.
The federal government responded by adding trillions of dollars in stimulus, while the Federal Reserve, the U.S. central bank, slashed interest rates to near zero and pledged to conduct a massive bond-buying program in order to prop up the economy.
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Since then, declining infection rates, vaccinations, as well as a gradual reopening of the economy have lifted forecasts for a rebound, with the U.S. and wealthier nations in particular expected to bounce back. Fed Vice Chair Richard H. Clarida said in 2021 during a speech, “This year the U.S. looks like it’s going to be a locomotive for the global economy.”
Meanwhile, the World Bank has said that the pandemic could reverse decades of progress for developing economies and cause permanent damage, resulting in a K-shaped recovery. The organization lowered its growth forecast for emerging-market and developing nations to 3.3% a year from 2020 to 2029, Before the pandemic, the bank had a 4% rate of growth estimate.
How Covid-19 Affected People
Even as economic conditions have improved, employment in February 2021 was still 8.5 million less than in February 2020–a loss that could take more than three years to recoup. Women, racial minorities, and low-skilled workers have been hit the hardest.
A net 2.4 million women versus 1.8 million men left the labor force between February 2020 and February 2021, according to a report by Pew Research Center . Meanwhile, Hispanic and Black women accounted for 46% of the total decrease among women.
Meanwhile, in early 2021, nearly 20% of renters in the U.S. were behind on their payments. President Joe Biden extended an eviction moratorium when he entered office in 2021, but widespread evictions are a serious possibility, according to researchers.
Furthermore, non-profit Feeding America projects that 42 million people (1 in 8) including 13 million children (1 in 6) may experience food insecurity in 2021. While that’s a slight improvement from figures in 2020, it’s a sign of how the Covid-19 pandemic could continue to inflict hardship, even after vaccinations ramp up and economic conditions somewhat normalize.
Racial disparities also exist when it comes to food insecurity, with 1 in 5 Black individuals expected to experience it, compared with 1 in 9 white individuals. The recovery could also take years. Feeding America said that after the 2008 financial crisis, it took nearly 10 years for food insecurity to return to pre-recession levels.
How Covid-19 Affected Industries
Savings in U.S. households nearly doubled in 2020. That trend, along with a soaring equity market and property valuations, lifted U.S. household wealth to $10 trillion from $9 trillion. Plus, federal stimulus packages grew household income by 3.7% in 2020, more than twice as fast as in 2019.
In 2021, retail spending started off with a bang, surpassing economists’ expectations and raising expectations the economy could reopen sooner as vaccine rates pick up and virus hospitalizations slow down. Even in 2020, consumer spending only slipped 2.6% as federal stimulus and e-commerce shopping trends mitigated the effects of the pandemic lockdowns.
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While leisure travel has shown signs of recovery in 2021, the forecast isn’t as hopeful for business trips, which is how airlines get a big chunk of their revenue.
Thanks to Zoom meetings and flexible work arrangements, many industry observers forecast business travel could take a long time to recover. Consulting firm McKinsey & Co. forecasts business travel will only recover to 80% of pre-pandemic levels by 2024.
The Covid-19 pandemic and the subsequent lockdowns triggered significant stock volatility and uncertainty in the global economy. Unfortunately, the widespread repercussions could linger for a while, particularly on lower-wage groups within developed economies and general populations in emerging markets.
For individuals, during periods of turbulence like this, it becomes even more important to focus on your financial goals and not get distracted by short-term losses. Getting your money right as an investor means staying the course and having the assurance that—in the long run—markets tend to increase. Business-cycle investing tends to be a tricky endeavor.
Diversifying your portfolio and making regular investments–even during a downturn—are some of the best things many investors can do. SoFi Invest® offers an Active Investing platform for those who know which assets they want to wager on. For those who want more help, the Automated Investing service may be a good option. All these products have no trading fees and you can started with as little as $1.
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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.