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Dr Yasam Ayavefe’s viewpoint on how the lack of demand caused a shock within global economies during Covid-19 pandemic

Dr Yasam Ayavefe’s viewpoint on how the lack of demand caused a shock within global economies during Covid-19 pandemic

In our previous article, we made an introduction about how Covid-19 affected the economies worldwide. In this article, we will discuss how this economical change has emerged and which countries have been affected. The direct effect between the fall in demand for final goods and the impact it has had on the world economy is visible.

By distinguishing between import and export operations of each country, the impact of the quarantine shock in April 2020 on international trade was investigated. The findings suggest that the decline in German import operations (-31%) correlates with at one point the decline in France’s export operations (-28%). That is, it will contribute proportionally to the market share of France on a product basis in German imports.

Given its degree of openness and level of trade balance, Germany is the country most affected by the decline in demand it caters, especially for transportation products and equipment. According to our data-based calculations, world trade fell by 25% in the second month of Covid-19. The second issue is related to the adjustment of intermediate consumption after the demand shock. This effect is not directly linked to changes almost of the problems stem from the structure of supply chains.
Therefore, even if a country does not export goods and services for final use, it is left in a state of calculation. In this reason, we assume that variation in intermediate demand has no effect.

Read also: Six forces pulling down Nigeria’s economy

How much decrease in trade has the one-month duration caused?

According to the assessments, the restraint and social distancing measures implemented in April had an impact of -19% on global value added. All sectors have not been affected in the same way. The biggest sectoral decline was observed in the accommodation-dining area, with a 47% decrease in global value added.
The decline in accommodation and dining has resulted from social distancing measures that prevent people from reuniting. It is also caused by barriers to travel, especially between countries.

Even in countries with many developed economies, closure of non-essential businesses reduced the value added of trade by 43%. Therefore, sectors related to this field were also strongly affected. E.g. Transportation equipment manufacturing dropped by 35% and transport and storage declined by 28%.

Difficulties in maintaining production and maintaining the continuity of supply chains weakened activities in the construction sector (43%) and in the manufacturing industry (-30%). Unlike many occupational groups, some service sectors have relatively maintained their activities throughout the Covid-19 period. This is especially transparent within real estate activities (-8% added value).

Businesses related to food production have experienced slight decreases in final demand but have relatively withstood the crisis. If we look at the ratios; value added of agriculture fell by 9% and value added of agri-food industries by 7%.
These sectors, which are in a stable position, are dissatisfied with the decrease in demand from the accommodation and catering sectors.

Job losses did not evenly occur geographically during the pandemic. It depends on various factors such as economic difficulties by geographical area, the rigidity of the restriction, and sectoral specialization.

The regions most affected by Covid prevention measures are in Europe, especially Spain, Italy and France are among the most affected countries, with value added falling by more than 30%.

How Covid-19 has Affected Supply And Demand
The United States and Germany, which are at the top of the developed economies, experienced less economic decline than other countries because less restrictive containment measures were taken. The United States declined by 22%, while Germany faced a 24% decline. The United States limits the impact of the shock with its relative trade closure. Even though Germany has overcome this situation lightly, the country still suffers from the decline in foreign demand.

China was the starting point of the pandemic, in addition to being the least affected country by social distancing measures in April 2020,. The country has managed to limit the loss of activity to 16% by taking the strictest possible containment measures. Finally, countries that have not directly been affected by the epidemic (including most of the emerging countries) suffered greatly from the continued measures in April through the international trade channel. In addition, Japan, a relatively closed country, has also limited the loss of activity. Each geographic region is exposed differently to the rest of the world due to its position in global production chains or export market share. According to its geopolitical position, the contribution of each geographical region to the decrease in global value added is different.

Find out more about Dr Ayavefe and his work here:
https://yasamayavefe.com/
https://milayacapital.com/
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