This Pandemic disease Coronavirus or COVID-19 may have disruptive effects on the economy. Disruption in the global supply of goods makes harder for the U.S to match the orders. Lockdown of a worker in many affected areas reduces the labor supply which results in delaying the demand for U.S products and services.
The economic disruptions and increased uncertainty by COVID-19 can be seen in lower valuations and increased volatility in the financial markets. Although the exact effect caused by the COVID-19 on the U.S. economy is unknown, But it is clear that it leads to tremendous risks.
Disruptions in the Supply chain makes difficult for U.S. firms to match the orders.
A disruption to the global supply chain is one of the major effects of coronavirus. This disruption leads with the list of manufacturers outside of China forced to decrease production in their plants growing longer every day.
This kind of widening of supply chain disruptions to suppliers of intermediate goods outside of China will make it increasingly difficult for U.S. firms to substitute products from other countries for the missing inputs from China.
The effects on U.S. firms will depend on how tightly they manage their supply chains. As a consequence of these supply chain disruptions, U.S. firms cannot finish their production and thus cannot bring their products to customers. The result is reduced economic activity and growth.
Demand and Supply
Worried consumers because of Coronavirus and its spread.
The virus is not only affecting the supply, but some other sectors of the U.S. economy have also experienced declines in demand. There are two separate effects to consider
First, people will buy less of some goods and services because they are afraid of potential exposure to the virus. For example, they may be less willing to travel or go out to eat.
Second, when firms are forced to close, workers likely will receive less money. Less money reduces the purchasing power which leads to the cutting of overall demand. Lower demand will further punch the economic activity size of its effect is largely unknown.
The economy could be affected by the uncertainty over the virus.
According to economists risk-taking is the key driver of the economy but if risks are known. Where unknown risks and uncertainties can have a huge or more paralyzing effect.
The current U.S. domestic economy — with its strong labor market and consumption levels but concerning low inflation and investment banks and other financial institutions may restrict and reprice credit because they cannot properly assess short-term risks to particular borrowers, sectors, or countries. Less credit availability could make it harder for businesses, especially smaller ones, to invest and grow. And, some potential homebuyers could find it harder to get a mortgage. Credit market uncertainty could then exacerbate the demand fallout from the coronavirus.
Interest rates and stock price decline as economic uncertainty takes hold:
U.S. interest rates have recently fallen to historic lows in a sign of increasing economic uncertainty. The 10-year Treasury yield fell from 1.69 percent to 1.50 percent in the last week of January after remaining steadily around 1.7 percent to 1.8 percent throughout 2019 and early 2020. The decline continued through February, and for the first time in 150 years, the yield rate dipped below 1 percent on March 3.
With the spread of the coronavirus, the United States is facing a potential “Black Swan Event” — an extremely rare and unpredictable incident that has potentially severe consequences.
In other words, to increase economic activity the government needs to engage in sizeable spending and investment in key areas of the economy; minimize disruption to the health and prosperity of the population, and reduce the effects on supply chains and the business sector.
Above all stay safe stay in Home.
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