Economic Research Forum (ERF)

How COVID-19 could shape a new world order

14709
The COVID-19 pandemic is a massive shock to the world economy and its impact will be wide-ranging across all domains of life. This column examines some of the potential effects – from the household level through societies’ priorities to international relations.

In a nutshell

The COVID-19 pandemic is affecting the fundamentals of many phenomena that we have taken for granted and considered to be constants that neither theory nor practice can challenge.

Some of those fundamentals are now being heavily shaken – including macroeconomics, politics, international relations, societies’ priorities and the relationship between science and religion.

We are experiencing the birth of a new world where all the factors are variables and nothing is constant.

The COVID-19 pandemic is not only the greatest shock to the world economy in its history, but also a disaster in all respects. It is affecting the fundamentals of many phenomena that we have taken for granted and considered to be constants that neither theory nor practice can challenge. Here are some of those fundamentals that are now being heavily shaken, and which are likely to evolve into a new norm. 

Macroeconomics

Several benchmarks will be dismantled. Rules such as budget deficits not exceeding 3% of GDP and debt ratios not above 60% of GDP, as set by the European Union (EU) and adopted by international organisations, will just be jokes: the majority of countries will exceed these ratios. Similarly, the stipulation that foreign reserves should cover six months of imports will be obsolete.

The macroeconomic consequences in the aftermath of COVID-19 will be unprecedented on all levels, requiring the need of setting new ratios to fit the dismal world macroeconomy.

Politics

The rise of populism (as evident in the United States, the UK, the EU and Latin America) will be highly questioned. The prevailing populist regimes failed to contain the disaster domestically and internationally. In fact, the leaders’ reactions were regarded as a scandal in several respects. The political vacuum that such populist leaders tried to fill has in fact widened and the trust in their actions has been lost.

In contrast, the autocratic regimes performed better in containing the outbreak, hence raising their popularity. The Western model of democracy in itself has reached its limits and the South’s search for a model to follow continues.

International relations

Regimes failed to cooperate effectively and coordinate efforts to contain the outbreak. The extent of international cooperation has remained weak and in fact the actions undertaken on a unilateral basis have so far proved to be more effective.

That trend is likely to continue where the idea of international and regional allies proved to be a myth. The Sustainable Development Goals will need to be modified to set priorities. Questioning the effectiveness of international and regional organisations will be heightened.

Societies’ priorities

The outbreak indicates that countries (governments and societies as well as people) will need to revisit their priorities, which will surely have an impact on expenditure outlays, savings, investments, etc. A whole new mind set-up is likely to evolve with online life crowned at its top. 

Types of economic system

All systems failed to contain the crisis, whether we are talking about capitalism (the United States), the social market economy (Germany) or mixed economies (France). Yet what is crystal clear is that role of the government will be central in any system to follow. It has proved to be the ultimate resort in any crisis and that the market is unable to handle them (witness the same experience with less severity in the 1997-98 and 2007-08 crises).

The relationship between science and religion

The outbreak shows that we need both science and religion, and that they are complements and not substitutes. The South’s poor religious societies started to believe in science (at least by wearing masks and using sanitisers) whereas the secular rich West admitted that science has its boundaries (witness the announcement of the Italian prime minister). This is itself a new paradigm.

At the household level

The utility of what you possess has increased and the utility of what you don’t possess has decreased, contrary to the conventional microeconomic laws. Unlimited ambitions at the personal level have cascaded downwards and appreciating the minimum of life needs is magnified.

The pattern of spending and prioritisation of matters has changed dramatically. We are in a new world of consumer behaviour to be followed by a new world of producer behaviour. The consumption and business models are changing dramatically. 

In a nutshell, we are experiencing the birth of a new world where all the factors are variables and nothing is constant.

Most read

Growth in the Middle East and North Africa

What is the economic outlook for the Middle East and North Africa? How is the current conflict centred in Gaza affecting economies in the region? What are the potential long-term effects of conflict on development? And which strategies can MENA countries adopt to accelerate economic growth? This column outlines the findings in the World Bank’s latest half-yearly MENA Economic Update, which answers these questions and more.

Trust in Lebanon’s public institutions: a challenge for the new leadership

Lebanon’s new leadership confronts daunting economic challenges amid geopolitical tensions across the wider region. As this column explains, understanding what has happened over the past decade to citizens’ trust in key public institutions – parliament, the government and the armed forces – will be a crucial part of the policy response.

Climate change: a growing threat to sustainable development in Tunisia

Tunisia’s vulnerability to extreme weather events is intensifying, placing immense pressure on vital sectors such as agriculture, energy and water resources, exacerbating inequalities and hindering social progress. This column explores the economic impacts of climate change on the country, its implications for achieving the sustainable development goals, and the urgent need for adaptive strategies and policy interventions.

Assessing Jordan’s progress on the sustainable development goals

Global, regional and national assessments of countries’ progress towards reaching the sustainable development goals do not always tell the same story. This column examines the case of Jordan, which is among the world’s leaders in statistical performance on the SDGs.

Small businesses in the Great Lockdown: lessons for crisis management

Understanding big economic shocks like Covid-19 and how firms respond to them is crucial for mitigating their negative effects and accelerating the post-crisis recovery. This column reports evidence on how small and medium-sized enterprises in Tunisia’s formal business sector adapted to the pandemic and the lockdown – and draws policy lessons for when the next crisis hits.

Unleashing the potential of Egyptian exports for sustainable development

Despite several waves of trade liberalisation, Egypt’s integration in the world economy has remained modest. In addition, the structure of its exports has not changed and remains largely dominated by traditional products. This column argues that the government should develop a new export strategy that is forward-looking by taking account not only of the country’s comparative advantage, but also how global demand evolves. The strategy should also be more inclusive and more supportive of sustainable development.

The threat of cybercrime in MENA economies

The MENA region’s increasing access to digital information and internet usage has led to an explosion in e-commerce and widespread interest in cryptocurrencies. At the same time, cybercrime, which includes hacking, malware, online fraud and harassment, has spread across digital networks. This column outlines the challenges.

Rising influence: women’s empowerment within Arab households

In 2016 and again in 2022, a reliable poll of public opinion in the Arab world asked respondents in seven countries whether they agreed with the statement that ‘a man should have final say in all decisions concerning the family’. As this column reports, the changing balance of responses between the two surveys gives an indication of whether there been progress in the distribution of decision-making within households towards greater empowerment of women.

Macroeconomic policy-making for sustainable development in Egypt

In recent years, economic policy in Egypt has been focused primarily on macroeconomic stabilisation to curb inflation, to reduce the fiscal deficit and the current account deficit, and to increase GDP growth. As this column explains, this has come at the expense of the country’s progress on the Sustainable Development Goals, which is rather modest compared with other economies in the region or at the same income level. Sustainable development needs to be more integrated with the conception and implementation of fiscal and monetary policies.

Qatarisation: playing the long game on workforce nationalisation

As national populations across the Gulf have grown and hydrocarbon reserves declined, most Gulf countries have sought to move to a more sustainable economic model underpinned by raising the share of citizens in the productive private sector. But, as this column explains, Qatar differs from its neighbours in several important ways that could render aggressive workforce nationalization policies counterproductive. In terms of such policies, the country should chart its own path.