Impact of COVID-19 on the government sector

Impact of COVID-19 on the government sector

Government and public service organizations primary responsibility is protecting their people and providing the services which can enhance their daily life. Whenever there is a crisis, a natural disaster or critical situation governments are the central responders and decision-makers.

During December 2019 there was a sudden increase in pneumonia-like disease in Wuhan, China. According to “South morning China post” the first similar case was found on 17 November, that's more than a month earlier doctors noted similar cases in Wuhan, China. At the end of December, the scientist suspected that virus stemmed from animals sold at the wet market (Fresh meat market) at Wuhan. The scientist also realized that the virus could jump from one species to another when they found out one infected person during the initial phase had no connection to the wet market.

On 31st December 2019, the WHO (World Health Organization) China office heard the first report of the virus, their precautionary measures were not enough to control the situation as other countries started to show the similar cases, on March 11 the WHO officially declared the COVID-19 outbreak as a pandemic. So far (as on 20 April 2020) there are 24,16,135 cases and 1,65,939 deaths worldwide.

As COVID-19 has impacted more than 200 countries, government officials are on their toes to fight this battle against an invisible enemy. The best possible way to stop the spread is to lockdown the cities which are impacted the most, closing down all the non-essential services and allowing people to leave their house to buy essentials such as groceries.

The global economy was undergoing a lot of turbulence in 2019, in the following table, we can look at the GDP growth rate over the years for the top 10 countries.

Particularly India wasn't doing very well as there was a sharp decline in overall demand & consumption. There was a 79.5% drop in the value of new projects announced during April to June 2019, this was the highest decline since 2004.

Germany is Europe’s largest economy, on the global scale, it is the 4th largest economy in terms of nominal GDP, with a $4 Trillion GDP. Germany's economic growth was falling for 2 consecutive years from 1.5% in 2018 to 0.6% in 2019 was the worst annual growth rate since 2013.

Let's look at the impact of COVID-19 on the industries. China holds the title of the manufacturing hub, according to the United Nations Statistics Division, China accounted for 28% of global manufacturing output in 2018. Too much reliance on China has disrupted the global supply chain. As the manufacturing accounts for nearly 16% of the global GDP in 2019 some companies are looking to diversify their manufacturing base out of China as they learned the valuable lesson that depending on one country is not a viable option.

Japan's government has earmarked a $2.2 billion economic stimulus package to shift manufacturing outside China as the factories in China were closed due to COVID-19 the imports to Japan were slumped down by half. The high valued products are to be manufactured in Japan, and the production of other goods to be diversified across Southeast Asia.

After the outbreak of COVID-19, the global FDI inflow has witnessed a sharp decline. As per the estimation by the United Nations Conference on Trade and Development (UNCTAD), the COVID-19 outbreak could cause global FDI to shrink 5%-15%. The negative effects on FDI investment are expected to be high in energy, automotive and airline industries, as the manufacturers of the automobile, chemical, electronics, and aircraft are facing concerns regarding the availability of raw material.

The major automakers such as Nissan, Hyundai, GM, Ford, Honda suspends production across the world.

The biggest possible problem ahead is unemployment, according to the International Labour Organization (ILO) Director-General Guy Ryder even before COVID-19 spread worldwide, the unemployment rate stood at around 190 million. With the added shock of the virus, it was obvious that we will face a sharp decline in the employment rate. As of now, workers in 4 sectors experienced the most “drastic” effects of the disease and falling production are: food and accommodation, retail and wholesale; business services and administration; and manufacturing. Together they add up to 37.5% of global employment.

The United Nations, in its estimates for job loss, said that global unemployment could rise by 25 million. This number does not include the unemployment rate for the unorganized sector. It underscored that around two billion people work informally, most of them in emerging and developing countries, and that “tens of millions” of informal workers have already been affected by COVID-19.

Highlighting the impacts already being felt in India, ILO pointed out that with its share of almost 90% of people working in the informal economy, about 400 million workers in the vulnerable sector now face falling greater impoverishment.

Another challenge ahead for the government is feeding their people, while most countries can sustain the impact for a longer period, some countries are at most risk.