Can We Save The Economy?

Authors: Simon Cui, James Dong, Patrick Lin, Doris Tan

Editors: Tiffany Chen, Joyce Hai, Demi Leng, Valerie Tai, Kira Tian, Molly Zhao, Leon Zhou

Artist: Karen Liu

In merely a few months, the COVID-19 pandemic has rocked countries all across the globe. As different governments scrambled to announce travel restrictions and issue lockdowns, both productions and demands for commodities drastically decreased. The chain reaction ensued further damage upon major aspects of the economy, including the oil markets, aviation industry, stock markets, and small businesses.

Recently, the oil demand has been a driving force for restoring the oil market, but the full revitalization is still exposed to risks. In April, the oil price reached an all-time low, hitting 37 USD per barrel. While certain countries have slowly begun to reopen their economy and the oil demand has slightly increased, the prospect of the oil market still faces many uncertainties. Fragile restoration of the economy, especially amid this pandemic, poses a great threat to market stability. According to the Organization of the Petroleum Exporting Countries (OPEC), the oil demand this year decreased by 8.6 million barrels as compared to last year. To balance the sharp decline in demand, OPEC and other organizations hope to cooperate to reduce the oil supply. Places like Saudi Arabia, a member of OPEC, plans to decrease their supply by one million barrels. The COVID-19 pandemic has greatly influenced the oil market, and keeping it under control is essential in normalizing the oil market again.

Another major aspect that has been severely affected by COVID-19 is the aviation industry. Many countries have prohibited foreign entry, which resulted in a reduction of more than 90% in aviation operations. Achieving a balance between saving airlines’ revenues while still being able to create a safe traveling environment has become the main concern. The aviation industry is still trying to improve aviation conditions for passengers. According to the International Air Transport Association (IATA), airline passenger revenue in 2020 is set to plummet by 314 billion USD, which is 55% lower than last year’s. This could seriously devastate the industry. One region that has especially been seriously affected is the Asia-Pacific. IATA shows how economic losses in the Asia-Pacific region amounted to 2.78 billion USD; the losses in China’s passenger transport market alone dropped by 1.28 billion USD. With so much revenue lost in the global airline industry, unemployment rates will continue to increase dramatically. As of May, the Bureau of Labor Statistics shares that there is a 13.3% unemployment rate. Also, under the control of the Federal Aviation Administration (FAA), airlines had to take the FAA’s guidelines into account. This caused airlines to reduce routes and flights and forced them to lower their fares to reduce losses. However, despite such a tumultuous year thus far for the airline industry, the amount of flights is slowly beginning to increase as countries begin to reopen.

The pandemic has also impacted the financial market; crashes in the stock market added to rising fears and led to a global economic shutdown. The shutdown of the economy caused demand to decrease and the unemployment rate to increase. Surprisingly, the stock market was reaching record highs just weeks before the crash, with The Dow Jones Industrial Average closing at 29,551.42 points, the S&P 500 at 3,379.45 points, and Nasdaq composite at 9,725.96 on February 14th. The stock market started tumbling in late February as fears of a possible pandemic began escalating with more than 83,000 people in around 50 countries infected. The Dow finished the week 12.36% lower than where it started while the S&P 500 fell by 11.5%. Stock prices continued to drop in March, putting the three major American stock indexes into the bear market territory. The market has since been recovering. The flattening of the curve and the sooner-than-expected reopening of the economy has enabled the market to slowly recover.

Small businesses are also struggling to get by. More than 90% of small-sized businesses have delayed the start of their operations and many have not decided on a reopening date. Nearly 80% of these small-sized businesses have performed worse than they normally would, mainly due to traffic control, reduced demand from downstream customers, and insufficient supply of upstream raw materials. Relying on their capital, most of theses small-sized businesses could barely maintain their operations for more than three months. If the impact of the pandemic continues, many small businesses may be forced to change their business direction. As for the national policies, small businesses are still not familiar with the recent easy credit policies for enterprises in the country. Instead, what is most needed are various subsidy policies and deregulation. Although the policy has provided some support, relative demand is still insufficient.

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