Home > The True Economic Impact of COVID-19

The True Economic Impact of COVID-19

October 29, 2020 By Mircea Vasiu

Europe faces a tough recession generated by the COVID-19 pandemic. As the second wave hit the old continent, the economic growth perspectives declined too. 

Small businesses are the ones that were hit the hardest by the pandemic. This impact is not exclusive to Europe, but in the United States too. In the last six months, the number of small businesses declined by 25% in the US alone. Considering what happened earlier this year, the second wave will likely bring much higher numbers in Europe.

New Lockdowns Affect Small Businesses

The big difference between Europe and the United States is that throughout Europe, governments intervened to support small businesses. For example, Germany just announced the closing of bars and restaurants for a month. However, at the same time, it announced a €10 billion injection to support the affected businesses.

In the United States, small businesses did not benefit from such support. All the Fed could do was to provide favourable lending conditions. But who wants to borrow in such uncertain times? As such, closing the business is more lucrative, at least until the world can control the pandemic.

The problem is that the small businesses sector employs a large number of people both in Europe and the United States. As such, the sector is a pillar for economic growth, and its health influences economic performance.

The second wave of the pandemic brought with it a significantly higher death toll across Europe. France, UK, Spain, Italy – they all reported this week their highest numbers since April/May. With the new restrictions already in place in all these countries, the first thing we will see is an impact on the oil demand.

As such, the price of oil will decline. This alone will trigger lower inflation, which will impact future economic growth too.

The point here is that the decline in the small businesses will likely continue, if not accelerate, moving forward. Of course, the social and economic consequences of the pandemic vary across countries and continents. Moreover, it appears that weather plays an important role. As winter reached Europe, people spend more time inside; favourable conditions for the spread of the virus when gathering in larger numbers. New lockdowns are inevitable – the big question is, for how long and what will be the final impact on small businesses?