By: Mi Nguyen
It has been almost two years since the COVID-19 virus was detected and the world is going deep
into quarantine and isolation to battle the immense spread of the virus. By this point, wearing
masks indoors and showing vaccination cards at restaurants has become the new normal already.
As we become so used to living with the virus, we tend to forget that COVID-19 is still there,
and it still has a huge impact on our current economy.
Examining the report from S&P Global Ratings, we can see that although the economy is slowly
recovering from the initial impact of COVID-19, the road to full pre-pandemic recovery is still
shaky due to surges of COVID cases in different countries along with new variants being
discovered. For instance, in the US, although key emerging markets, like Brazil, India, and South
Africa, are seeing huge improvements in their conditions with some even reaching their pre-
pandemic levels thanks to accelerated vaccinations across the world. These emerging markets are
successfully surviving the COVID-19 by altering their consumption and investment pattern to
adapt to the pandemic, increasing economic growth. However, those same markets are also a
huge risk against the development of the economy due to the high inflation in many of the key
emerging markets. That is due to the fact that the higher the inflation rate is, the more interest
rates are likely to rise. This is because the purchasing power would decrease as the price rises so
the lenders will increase their interest rate to compensate for that loss. This in turn, puts a strain
on small firms and businesses that borrow money in order to operate. In addition to that, the US
monetary is also tightening a lot faster than expected, which leads to a high risk of default and
bankruptcy for firms, especially lower-rated entities. Similarly in Europe, although the general
economy is rebounding tremendously due to the low rise in COVID-19 cases, increase in
vaccinations, and social mobility returning, the rapid growth is putting a lot of pressure on
earnings. That means that supply dislocation, inflation, and related cost pressure are also
increasing. The onslaught of these increases could lead banks to increase their interest rate. This
in turn would hurt weaker borrowers. The same issue also persists globally as weaker corporates
and emerging markets are put in vulnerable positions as their markets continue to shift rapidly
and banks are forced to tighten their monetary condition to combat the high inflation rate. For
instance, in October of 2021, the IMF had warned central banks, like the Fed, to set up a plan of
action to carry out when the inflation rate is out of control. The recommended way by the IMF
was to increase the interest rate. But despite the many risks that the pandemic brings, the global
economy and market, in general, are seeing a positive increase in their credit and growth.
On the other hand, the stock market does not fare as well as the other sectors for this month of
November. Just last Friday, the stock market had taken a huge hit after a new COVID-19 variant
was detected in five African nations and is believed to be more infectious than the previous
varieties. The Dow plunged more than 1,000 points by midday and closed 2.5% lower at 34,899.
While, S&P 500 dropped 2.3% to close at 4,594 and Nasdaq dropped 2.2% to close at 15,491. Scientists are still gathering data to determine how infectious the variant is and the vaccine’s
capability to subdue it, but already investors are selling their stocks from the tourism market as
the US has already begun restricting travel from certain countries and the suspicion of lockdowns
being reinforced in Europe again. The Royal Caribbean Cruise Lines stocks already dropped by
13% and United Airlines dropped by 10%, all in the span of one day.
With the ongoing discovery of new COVID-19 and the pandemic developments, it is truly hard
to determine how the world economy would progress through these periods as unexpected events
and discoveries keep on disrupting the growth and recovery of economies around the world.
There still is no cure for the COVID-19 pandemic and the economy therefore still tethering
around its existence and a solution to nullify it.