Among the numerous global crises, the coronavirus pandemic, which started in early 2020, has definitely occupied a specific place for its unique and terrifying impact. Having claimed the lives of more than one million and three hundred thousand people, it has strained the national health systems to their limit (WHO Coronavirus Disease (COVID-19) Dashboard, 2020). This resulted in an urgent need for immediate virus containment actions, which have dramatically changed the global economy. According to the data provided by the International Monetary Fund (2020, p. xiii), over 90 million people “are expected to fall into extreme deprivation this year,” and the global GDP contraction will exceed four percent. These effects will have long-term consequences, which will probably lead to the creation of a new international economic structure. Moreover, despite the overall negative influence, some industries and areas of activities can benefit from the occurring changes. Therefore, a review of the most probable long-term trends in production and consumption is necessary for finding optimum solutions in this increasingly volatile period.
First, it is reasonable to consider some high-level structural changes, which will probably occur in the world economy. The primary paradigm before the current crisis was the increasing level of globalization and interdependence between nations. However, the numerous lockdowns and almost complete closures of traditional transportation paths resulted in severe disruptions of multiple supply chains. This demonstrated the high risk of such interrelated structures and became a motivating force for “nativist nationalists and protectionists,” arguing against “the free movement of people and goods” (Karabag, 2020, p. 2). Therefore, the recovery strategies for many companies will include a revaluation of their supply chains and probably searching for vendors closer to their production facilities. This trend will revitalize local manufactures, which will turn into valuable sources of vital goods.
Moreover, the crisis response also became a critical test for various regional supranational institutions. The most obvious example is the one of the European Union, which showed the fragility of such integration. The unwillingness of leading countries to provide critical medical supplies to their weaker partners and rapidly introduced travel restrictions demonstrated the prevalence of national interests (Karabag, 2020). Although these actions are unlikely to destroy the entire union, the initial response showed the significance of local production and vital resources stockpiling. This will undoubtedly encourage national governments to apply various economic measures to support their own manufacturers and limit the dependence on international supply chains.
The next trend which will outlast the pandemic itself is the digitalization of the modern economy. Although this is a traditional way to overcome crisis time, the current case is significantly different from the previous ones. The widespread lockdowns and measures intended to stop virus transmission have resulted in unprecedented closures of businesses. This critically affected the service industry, especially catering, non-essential retail, and entertainment. As a counter-measure, many companies commenced their innovations in the area of “contactless or remote delivery through robots, drive-through, or community-driven deliveries” (Heinonen and Strandvik, 2020). Even restaurants and hotels, which traditionally provided only dine-in services, started developing their delivery models. Moreover, such digitalization has proven to increase the efficiency of small and medium enterprises, especially in terms of enhanced cash flow and improved predicted performance (Guo et al., 2020). Finally, this trend has already influenced the behavior of regular customers, who have become more inclined to conduct online shopping and order delivery services. Therefore, the economy digitalization, which started during the pandemic, will constitute one of its long-term consequences.
The trend mentioned above will also have implications for the value of corporate assets and attitude towards their utilization. According to recent statistics, the capitalization of physical premises occupied by American retailers has dropped by more than thirty-five percent (Diebner et al., 2020). This indicates a high probability of permanent closures of underperforming stores, which will be replaced by digital channels combined with local pickup facilities. Moreover, this attitude has already manifested itself in the spread of corporate bond prices, where the availability of tangible assets has turned into an unfavorable factor (Halling, Yu and Zechner, 2020, p. 516). This can primarily be attributed to the reduced flexibility of such companies, which are required to cover permanent expenses generated by their property. Considering that many health care experts view this pandemic as an event which can reoccur in the future due to extensive international connections, many corporations feel obliged to reassess their asset policies. Therefore, the closures of individual facilities and their replacement with online channels will be one of the trends prevailing in the post-COVID economy.
Although the development of digital channels has supported businesses from many different industries, there are some for which mobility restrictions are an insurmountable obstacle. First, it is necessary to mention tourism, which has experienced a dramatic fall of around 80% in its international segment (Organisation for Economic Co-operation and Development, 2020). The continuing lockdowns and future uncertainty have placed this industry among the most damaged ones, with the recovery to pre-COVID levels expected to take at least several years. In this area, government support measures are critical for saving millions of jobs and preventing widespread bankruptcies. One of the primary changes will be a shift towards domestic tourism, which many countries already support despite closed international borders. An exemplar program is carried out by the Russian government, which offers up to two-hundred U.S. dollar cashback for domestic tours (Maglavko, 2020). It is also expected that tourists will start paying more attention to sustainability issues and prefer environmentally-friendly resorts. Finally, rebuilding traveler confidence will be a critical task for the industry. Thus, tourism will be among the sectors suffering the most devastating long-term effects.
Another industry, which is also entirely dependent on people’s mobility and stays in the spotlight of many government support programs, is aviation. According to the latest forecasts, the passenger traffic revenue for 2020 will be twice below the values observed during the previous years, and the recovery terms are unknown (Suau-Sanchez, Voltes-Dorta and Cugueró-Escofet, 2020, p. 1). The significant amounts of state support provided in the majority of developed countries have temporarily saved most companies from bankruptcy, but their economic situation is still very complicated. One of the critical concerns for the industry is the reduction of future business travel due to the acquired telecommunication skills. Adding to the increased consideration of health hazards and reduced leisure travel caused by overall economic complications, this will lead to further market overcapacity and traffic reduction. Many experts believe that such a development may be beneficial for low-cost carriers capable of extending their operations at primary airports due to their decreased congestion (Suau-Sanchez, Voltes-Dorta and Cugueró-Escofet, 2020, p. 4). Therefore, the crisis will further aggravate the situation of traditional airlines, changing the world of air travel entirely.
Finally, apart from the various industry-level transformations, it is reasonable to review the modifications in consumer behavior caused by the pandemic. Although most data are still being analyzed, there are some valuable evaluations on spending and savings, which indicate certain long-term trends. Research conducted in Great Britain showed that after a significant drop in spring, consumer spending partially recovered but only reached a level of 90% (Davenport et al., 2020, p. 2). Moreover, a similar degree of recovery was noted in various areas regardless of their local case counts. At the same time, a significant accumulation of savings was observed among the higher-income households. It can be partially attributed to the unavailability of desired goods due to lockdowns. However, the lack of full recovery indicates more profound transitions in citizens’ mentality and their willingness to save resources due to the unpredictable future. This trend shows a significant shift in many people’s attitudes, which the businesses need to account for in their future development plans.
The review provided above demonstrates the comprehensive and long-lasting economic effects of the coronavirus. Constituting a unique occurrence in recent history, this pandemic has severed existing connections showing the vulnerability of international dependence. This has turned into a strong argument against the current globalization and has encouraged many governments to support their local producers. Although such a trend is reasonable, one of its long-term consequences will be an increased inequality level due to the exclusion of poorer countries from the manufacturing chains. Besides, the pandemic has intensified the digitalization of the economy and emphasized the value of modern information technologies. It has also brought entire industries, such as tourism and aviation, to the brink of their collapse, requiring states to allocate substantial financial resources. Finally, coronavirus has changed consumer priorities, reducing spending, and making people more inclined to save money. It is early to make final conclusions on the long-term effects since the crisis is still unfolding. However, it is already evident that unlike any previous downfalls, this pandemic will entirely transform the world economy and require all businesses to adjust their activities.
Reference List
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Diebner, R. et al. (2020) Adapting customer experience in the time of coronavirus.
Guo, H. et al. (2020) ‘The digitalization and public crisis responses of small and medium enterprises: Implications from a COVID-19 survey’. Frontiers of Business Research in China, 14, 19.
Halling, M., Yu, J. and Zechner, J. (2020) ‘How did COVID-19 affect firms’ access to public capital markets?’ The Review of Corporate Finance Studies, 9, pp. 501–533.
Heinonen, K. and Strandvik, T. (2020) ‘Reframing service innovation: COVID-19 as a catalyst for imposed service innovation’, Journal of Service Management.
International Monetary Fund (2020) World Economic Outlook, October 2020: A Long and Difficult Ascent.
Karabag, S. F. (2020) ‘An unprecedented global crisis! The global, regional, national, political, economic and commercial impact of the coronavirus pandemic’, Journal of Applied Economics and Business Research, 15(21).
Maglavko, S. (2020) ‘Russia to subsidize tourists on domestic vacations – PM’, The Moscow Times.
Organization for Economic Co-operation and Development (2020) Rebuilding tourism for the future: COVID-19 policy responses and recovery.
Suau-Sanchez, P., Voltes-Dorta, A. and Cugueró-Escofet, N. (2020) ‘An early assessment of the impact of COVID-19 on air transport: Just another crisis or the end of aviation as we know it?’ Journal of Transport Geography, 86, pp. 1–8.
WHO Coronavirus Disease (COVID-19) Dashboard (2020). Web.