Reactions to COVID-19 by various economies

COVID-19 has cast an unprecedented impact across nations in terms of decline in growth

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According to the IMF’s April 2020 World Economic Outlook, the global economy is set to contract by 3%. Within this subset, advanced economies are expected to contract by 6.1% while emerging market and developing economies will see growth declining by 1.1%. India’s GDP is expected to witness a de-growth of 5% for FY 2021

Across the globe, COVID-19 induced slowdown has led many countries to introduce stimulus measures in a never seen before manner. The impact of these measures ranged between 10-20% of the GDP of these countries. The idea is to infuse (to ensure) demand revival and economic growth. Apart from fiscal measures, monetary measures were also undertaken to improve liquidity and growth

Working of stimulus

More expenditure on infrastructures like roads and ports generate employment and income which in turn induces people to spend more. This leads to demand revival, corporate profitability returns, and demand for credit also picks up. This process leads to overall economic growth.

Stimulus measures by select economies in response to COVID-19










The above 9 countries that are most vulnerable to COVID-19, together accounted for stimulus packages worth $9.5 trillion or 6.6% of the global GDP.

Sectoral impact in a nutshell


Since low-income households are given support, discretionary spending may see a surge, going forward. This should benefit the Fast Moving Consumer Goods (FMCG) industry, especially true for India where rural incomes might rise due to MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and income transfers. Retail trade is another beneficiary, visible in the rising retail sales volumes in the US of late (17.7%).

Fintech, Entertainment & OTT:

As work from home becomes the norm, the digital economy will witness a huge boost. Also, as people do financial transactions online, the fortunes of fintech players should revive. In a similar vein, the entertainment industry and OTT players will have a really good time going forward as people avoid theaters and malls.


As corporate profits decline, discretionary spending like those on IT projects will decline. Though tax deferrals are given to them, they have to be paid later with interest. So, this may not contribute much to corporate profitability. IT and ITES segments are unlikely to benefit much from the stimulus packages as corporate spending is discretionary.


Surging online orders though good for the e-commerce segment might fail to create a material impact as lockdown restrictions prevent seamless movement of delivery boys. This is why we see large-scale lay-offs in Swiggy and Zomato. However, newly created start-ups in this space will benefit due to a slew of incentives like paycheck protection, exclusion from social security contributions, etc.

BFSI space:

The banking industry needs to be watched as they suffer the double whammy of stress in corporate and retail books. However, the insurance industry might see traction as more awareness of health issues might increase insurance penetration.

Green energy and e-mobility:

Recognizing the impact of the lockdown on pollution levels, countries like Germany are giving huge thrust to green projects and e-mobility. The auto industry in countries like Germany will see a revival as they depend on export markets like China which is slowly getting back to normal. However, in India, the auto industry will remain tepid as production is largely for domestic consumption which will not revive unless salary cuts and job losses are restored.

Staffing and HR:

Hiring activity has come to a standstill and is unlikely to revive fast even if normalcy returns as corporate would have found ways to manage the situation by gigs and contracts. This segment is likely to face stress and stimulus wouldn’t have much impact.

Media & publicity:

The stimulus will lead to firms, especially start-ups and small businesses, reviving ad spends which had dried up. This will benefit the industry going forward. Also, as lockdowns are eased, newspaper distributions will resume. But digital media will gain in a big way as more and more now get used to it.

Sales & marketing:

The stimulus will not have a direct impact on sales and marketing. However, as lockdown eases and people movement becomes easier, this activity should pick up

Real estate:

Work from home reduces the demand for office space. Hence, commercial real estate will be adversely hit. Meanwhile, residential real estate will also not revive as low-income levels will make people more cautious, deterring them from house purchases. However, affordable housing might see some traction.


Airlines have been largely untouched by the stimulus package. While the easing of lockdown has led to some flights resuming, the capacity utilization is far from normal. Moreover, rising fuel prices will now exert pressure on their finances.

Travel & Tourism:

Covid-19 has had a direct impact on the tourism sector. With lockdown only partially eased, domestic and international tourist segment has been severely impacted. Many tour operators have closed down.


This is another segment that has been badly hit. The most obvious example is Oyo Rooms (which was hit even before the lockdown) which saw a huge plunge in profitability and massive lay-offs.

Multiplexes, malls & restaurants:

Low demand coupled with the lockdown has severely curtailed footfalls at malls and multiplexes. The emergence of OTT players has further slowed down the business of theatres. Restaurants too suffer from low footfalls.


There has been huge reverse migration from urban to rural areas which will adversely impact the construction industry since many migrants were employed in this sector.


Low corporate profitability has led to reduced credit offtake which impacts the interest income of banks. Also, a slowdown will lead to a rise in NPAs as well.

It is pertinent to note that start-ups and healthcare dominated the sectors that benefited from the stimulus packages. These should do much better post the pandemic. Many countries have created a special dispensation for start-ups and venture capital funding as part of their stimulus packages.

Stimulus as % of GDP

To be sure, the stimulus package announced by India was the least both in absolute terms and as a % of the GDP. The reasons for the same will be discussed in a separate blog


1) Briefly explain a typical stimulus mechanism

2) Briefly state the monetary measures by Brazil to combat the crisis

3) Briefly outline the main features of Germany’s package


  1. International Monetary Fund- Policy tracker
  2. Finance Minister’s presentation on Atmanirbhar Bharat
  3. Brugal research
Dr. Madhavankutty G
Dr. Madhavankutty G

Prior to joining ET Prime, was Senior Economist with Bank of India. Prior to that was an Economist in Andhra Bank (now Union Bank of India) and also served in ICFAI University as a research fellow.
Also a Member of the IBA Monetary Policy Group, and was a visiting faculty in Economics area at NMIMS University, Navi Mumbai and K.J.Somaiya Institute, Mumbai.
Holds a Masters in Business Economics and is a Certified Associate of Indian Institute of bankers (CAIIB)


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