This simple equation is at the heart of the global economy: One person’s spending = another person’s income.
It’s referred to as “supply and demand”—producers will supply as much as consumers demand. So if consumers aren’t buying anything, producers won’t be able to sell anything. In other words, whenever you buy something, you pay someone else’s wages.
So the current COVID-19 pandemic is not just a global health crisis but also an economic one. When people are told to stay at home, they stop going to restaurants, bars, and movies. They can’t travel, so they don’t spend money on gas or airfare, and they don’t stay at hotels. And when no more than 10 people can be together in one place, everything from birthday parties to music festivals to major world sports events are canceled.
COVID-19 has already had a serious impact on the hospitality, entertainment, sports, energy, and transportation industries, and the pandemic isn’t over yet. In some places, it’s just getting started. No one knows when it will end or how long it will take to recover.
From the UN Conference on Trade And Development: "A preliminary downside scenario sees a $2 trillion shortfall in global income with a $US220 billion hit to developing countries (excluding China). The most badly affected economies in this scenario will be oil-exporting countries, but also other commodity exporters, which stand to lose more than one percentage point of growth, as well as those with strong trade linkages to the initially shocked economies. A combination of asset price deflation, weaker aggregate demand, heightened debt distress and a worsening income distribution could trigger a more vicious downward spiral."