Economic Theory and the 2020 Crisis

Jan 14, 2021 Assignment Help
Economic Theory and the 2020 Crisis

A Public Health Emergency was declared on 30 January 2020 which was of international concern. A case of pneumonia with an unknown cause was identified in Wuhan, China and was reported to WHO (World Health Organisation). The outbreak was named as COVID-19 by WHO which took the form of a pandemic (WHO, 2020). This crisis, due to the outbreak of COVI-19 pandemic has led to an economic crisis due to lockdown in the affected countries globally. This study will highlight the macro-economic and micro-economic effects of pandemic COVID-19 on Canada.

Impact of COVID-19 on the four macro-economic factors

Economic Theory and the 2020 Crisis

Figure 1: Current GDP Growth in Canada Source: (Trading Economics, 2020)

Based on the above diagram, it is observed that the country expected to enrich its GDP at 1760 USD billion by the end of 2020 (Trading Economics, 2020). In January, the GDP rate of the country is also raised by 0.1% before coronavirus pandemic hit the country (Global News, 2020). In March 2020, the GDP rate of the country is also decreased by 9% due to the amid COVID-19, and that also affect the country’s overall production line especially in three industries such as manufacturing, financial, transportation and warehouse (Global News, 2020). For example, the contribution of the sectors in the country’s GDP reduced by $174 billion from the manufacturing industry, $142.7 billion from the financial sector (Trading Economics, 2020).

Economic Theory and the 2020 Crisis

Figure 2: Current Inflation Rate in Canada Source: (Trading Economics, 2020)

The expected rate of inflation in Canada is around 2.73% by the end of 2020 (Trading Economics, 2020). Whereas, the inflation rate of the nation faces a downfall of 1.2% due to amid COVID-19 highly affected the economy of the country. The biggest factor of that situation is that the less demand for oil and travel in the country. In addition, the lowest interest rate of the Central bank, which is around 0.5% is another reason for the economic slump of the nation (Global News, 2020). Due to the effect of amid COVID-19, the Government took that initiative to extend lockdown in the whole region of the nation which disrupts the supply chain of the nation.         

Post the outbreak of COVID-19, many sectors in Canada like manufacturing, retail, hospitality, transportation, etc., is at risk. The Business Barometer of Canada has identified that the business index has fallen from 60.5 in Feb 2020 to 30.8 in March 2020 (Hillnotes, 2020). The Labor Force Strategy has declared that the outbreak of the pandemic has reduced the employment ratio has reduced by 5.5% within one month. The employment rate fell by 1 million or 5.3% in March, which has been recorded as the lowest rate since 1997 (CBC, 2020). The figures stated above implies that there has been a significant increase in the rate of unemployment in Canada.

The novel (COVID-19) has affected the operations of Canadian companies. The outbreak of the virus has implied temporary restrictions at the borders, which has affected the developmental activities of the business (Tradecommissioner, 2020). However, Canada is committed to keeping the supply chain open and lower down the excessive strict measures on goods, especially medicines. Hence, the international trade of Canada has also been affected except for the necessities.

Impact of COVID-19 on one microeconomic factor

Economic Theory and the 2020 Crisis

Figure 3: Demand and Supply Trend Source: Author

Based on the above diagram, it is observed that the demand for necessary products in the country is highly decreased. The demand for necessary products such as consumer goods, equipment and furniture are also reduced due to disrupting in the supply chain within the nation. In that context, lower demand for products also decreases the price of products which affecting the economic stability of the nation (Global News, 2020). Moreover, the quality of the supply of products is also reduced due to that pandemic situation for COVID-19. The prices of gasoline in the country is also reduced by 7.8% which is the biggest factor for the slump in the economy of the nation and that also affecting supply chain of the nation (Global News, 2020).    

Identification of remedial measures to preserve and protect the economics from recession

Based on the current economic situation of the country, it will be suggested that the Central bank of the nation requires to finance more money for public debt in order to infuse the collapse. In April 2020, the Central bank is also decided to lower the interest rate by a huge margin for the public debts. In that context, the Central Bank will require to purchase a huge margin of Corporate Bonds to support the Government with financially. The Government will require to take health caution measures to prevent this pandemic situation. The financial support from Central Bank will influence the Government to deal with ongoing recession towards the capital market.              


Based on the above calculation, it is observed that COVID-19 is highly affecting the supply chain of the nation, which made its impact on the inflation and GDP growth rate. Low quality from the suppliers decreases the demand for necessary products within the country, which are the main reason for GDP growth fall down of the nation by 9%.  


CBC. (2020). Nova-scotia-employment-numbers-drop-covid. Retrieved from Nova-scotia: https://www.cbc.ca/news/canada/nova-scotia/nova-scotia-employment-numbers-drop-covid-19-1.5529444

Global News. (2020). Global News. Retrieved from Canada’s GDP up just 0.1% in January, before coronavirus hit: https://globalnews.ca/news/6755652/canadas-gdp-januray-2020-before-coronavirus/

Global News. (2020). Global News. Retrieved from Canada’s GDP shrank by 9% in March amid COVID-19: StatCan: https://globalnews.ca/news/6820197/canada-gdp-march-covid-19-statscan/

Hillnotes. (2020). Impacts-of-covid-19-on-selected-sectors-of-canadas-economy. Retrieved from Hillnotes.ca: https://hillnotes.ca/2020/04/08/impacts-of-covid-19-on-selected-sectors-of-canadas-economy/

Tradecommissioner. (2020). Commerce-international-COVID-19-international-trade.aspx. Retrieved from Tradecommissioner.gc.ca: https://www.tradecommissioner.gc.ca/campaign-campagne/commerce-international-COVID-19-international-trade.aspx?lang=eng

Trading Economics. (2020). Trading Economics. Retrieved from Canada GDP | 1960-2019 Data | 2020-2022: https://tradingeconomics.com/canada/gdp

Trading Economics. (2020). Trading Economics. Retrieved from Canada Inflation Rate1915-2020 Data | 2021-2022: https://tradingeconomics.com/canada/inflation-cpi

WHO. (2020). Novel-coronavirus-2019/events-as-they-happen. Retrieved from WHO.int: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen

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