“COVID-19 is a particularly pernicious economic shock, as it is both a supply and demand-side shock,” said Mark Zandi, chief economist for Moody’s Analytics. Topic: European Macroeconomics & Governance. This is particularly critical as we confront a second wave of COVID-19 and the threat of additional disruptions. While the major policy interventions in the US have treated all types of business as equivalent, industries Businesses have varying degrees of inter-dependence on infrastructure ecosystems outside of their direct control, such as the power grid, telecommunications and internet service providers. A supply shock is something that reduces the economy’s ability to produce goods and services at given prices. The circuit-breakers are analogous to the GPS providing a suggested change of route—they help companies correct a disruption before it cascades out of control. The key determinant is the shock’s ability to damage an economy’s supply side, and more specifically, capital formation. Get weekly and/or daily updates delivered to your inbox. Distribution 4 is, in all likelihood, what has actually happened, as the COVID-19 shock has brought down average expected growth but has also caused its variance to increase – a double whammy to growth expectations. A demand shock, on the other hand, reduces consumers' ability or willingness to purchase goods and services, at given prices. This, by reducing the economic pain, will allow the government to continue lockdown measures when necessary, potentially shortening the length of the pandemic. This can happen because of the interrelated pieces of a complex economy. This can sap income from even unaffected workers—and dampen their willingness to consume. Reduced uncertainty about growth should bring about some recovery of the stock market. What is the balance between the negative aggregate supply and demand effects of the COVID-19 shock? The sum of the red and blue bars is the percentage point change in the growth rate of hours worked relative to its historical average; the size of the red bar relative to the blue bar shows how important supply shocks were relative to demand shocks in that sector. Besides the loss of human lives, inaction also risks massive disruptions in supply and demand as well as illiquidity in the financial sector. The first ‘sector’ is total private employment, and our results show that two-thirds of the decline in hours were attributable to supply shocks. While COVID-19 has caused a severe supply shock that is expected to increase unemployment and poverty, there is also a sizable feedback loop in terms of demand. Because of this, some policy makers and economists argued early on against government stimulus, which is the usual response to a shock caused by a lack of demand, as opposed to supply. Other ecosystems include banking and insurance, logistics and technology providers and various levels of government that provide inspections, permits and approvals. They argue that the supply shock has led to an even larger demand shock, as affected workers lose income and all consumers cut back on spending. These were disruptions to the availability of goods sourced from China; both finished goods for sale and products used in factories in developed markets. By: Workers in shuttered industries lose spending power, so demand drops in all sectors. Apart from any fair dealing for the purpose of private study or research, no The pandemic has highlighted the vulnerability of […]. When that lack of digitalization is coupled with poor interconnectivity among supply chain ecosystems, it results in food uncertainty concerns.