Socioeconomics of the covid-19 pandemic - ERDAL TANAS KARAGÖL

Socioeconomics of the covid-19 pandemic

Markets across the globe are bouncing up and down so sharply everyday due to the coronavirus pandemic that we are experiencing in a single day now fluctuations that would normally take three to five years to occur. As a matter of fact, if scenarios were written for likely risks with regards to the world economy, they probably would not have been so complex.

The measures countries are taking to prevent the spread of this pandemic are also imposing a new socio-economic structure.

A new socioeconomy?

The coronavirus pandemic is imposing a new socio-economic structure. While it is becoming mandatory for people to stay at home to prevent the virus from spreading, there is a shift towards an economic structure where numerous people, primarily those in the software industry, do their business and meet their e-commerce needs from home. Meanwhile, flight suspensions between countries, the closing down of borders, demand shrinking in the tourism and service sectors are predicted to lead to numerous adverse results on both economic growth and trade. In fact, the likelihood of the pandemic lasting long signals sudden recessions in all economies.

The aggravation in macroeconomic indicators and businesses in numerous sectors suspending their operations as a result of this new socio-economic situation imposed by the coronavirus pandemic is expected to give rise to many deep economic and social problems such as unemployment.

What are some of the new measures for the economy?

Numerous central banks and governments around the world are going to utilize all the tools they have under their disposal in a bid to alleviate the financial burdens the coronavirus epidemic will cause.

Central banks worldwide are cutting interest rates while also injecting money into the market. The U.S. Federal Reserve (FED) slashed interest rates to zero percent this week, stating that it will provide additional resources to markets in this field as a means to counter any problems in the financial field and probable economic stagnation, i.e. recession.

Turkey’s central bank (TCMB), on the other hand, cut its key interest rate by 100 basis points in anticipation that risks in inflation will drop due to the decline in demand. In addition to this, the TCMB took a series of measures against the likely economic and financial effects of the coronavirus pandemic.

As part of these measures, the TCMB will provide banks with the liquidity they require and credit will be provided to the real sector below the policy interest. The Central Bank will be providing banks that meet real credit growth conditions some $5.1 billion of liquidity, while up to $7.6 billion of rediscount credit repayments will be postponed.

Besides the measures taken by Central Bank, the government is also expected to take important decisions with respect to matters such as the postponement of credit installments, the postponement of the bank loan repayments for those who have been laid off, supporting the increase of consumption in the economy by reducing credit interest rates, postponing the credit debt of businesses with credit debts interest-free, and postponing the tax declaration and VAT payment periods.

Meanwhile, not only the Central Bank and the government but the private sector is also expected to contribute to the steps to be taken during this critical period.

However, it is a fact that the longer the coronavirus pandemic lasts globally, the need for financial resources will also increase along with the stagnation in economies. Yet, it goes without saying that the resources to be provided by many countries to offset the damage wrecked by the pandemic are limited.

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