BECON111

Macroeconomics
Spring 2021

Macroeconomic Impact of COVID-19 in China and Spain

Prepared by:

Abdallah Mohamed Abdallah Aly Mostafa

Aly Nazem Nour El Din Aly Omar

Mennatallah Hassan Mohamed Hassan Ahmed

Mohamed Omar Zantout

Ziad Ashraf Mahgoub

Submitted to: Dr. Hélène and Dr. Roba

Date: April 27, 2021

EXECUTIVE SUMMARY

The COVID-19 outbreak not only threatens the lives and safety of people, but also
significantly affects economic growth in China and Spain.
China's GDP growth rate is on the decline as they reached their lowest growth rate since
1990 which was 6.1% in 2019, while Spain’s GDP was falling by 12.8%.
The unemployment rate in China and Spain has been increasing annually since 2018 to
2021.
Different effects of COVID-19 were observed for various industries in China and Spain.
Central and local authorities have taken a number of steps in support of disease
prevention and control materials development and supply.
ABSTRACT

COVID‐19 is an extreme acute respiratory syndrome (SARS)-inflammatory disorder that causes

a major global infection. The current COVID-19 pandemic is not only an economic but also a
public health issue. It seriously disturbs economic activity by mandating government shelters,
lock-down orders and social insulation responses to self-protection. Over that time, catering,
tourism, entertainment, transport and other industries were seriously affected, with a significant
short-term impact on national economic growth. The consequences of weak financial markets
and everyday life across the world will lead, in addition to the disruptions to the global supply
chain, to lower consumer spending and investments. The COVID-19 outbreak not only threatens
the lives and safety of people, but also significantly affects economic growth in China and Spain.
This paper aims to analyze the macroeconomic effects during the COVID-19 crisis in China and
Spain.
INTRODUCTION

The COVID-19 has had a serious outbreak in a closely connected and cohesive world that has
had a devastating effect on the world economy. Over and beyond the outbreak, the COVID-19
pandemic had far-reaching effects. China was the first nation to lock in to secure COVID-19
transmission throughout the country. The central Chinese government also initially puts Wuhan
to a complete lockdown, which was the focus for the outbreak of the Wuhan city on 23 January
2019 and by 30 January 2019 the isolated radius was expanded to other cities. China's decision
shocked the world as it is the world's production hub and the increasing impact of the nation's
shutdowns will bring about compulsive supply for different industries, including Spain and
worldwide. Several instances of a declining economy have been observed and expected, and the
Spanish economy has not been left behind. The detrimental effect on the financial markets, travel
and supply chains in Spain of COVID-19 led to the economic downturns of the country. The
current situation of COVID-19 has traumatized China and Spain's macroeconomic activities in
many aspects.
CHINA

I. Impact of the economic growth outbreak

The Chinese Government has taken unprecedented quarantine action, including the constraint of
mobility and suspension of commercial operations, due to its extremely infectious and hidden
existence of the COVID‐19. In order to effectively contain the disease, implementing these
policies had a beneficial effect but a harmful impact on the economic growth of China. China has
a very stable yet uprising economy. The GDP and GDP per capita is at a steadily increasing rate.
The inflation rate is close to ideal as it is always between the range of 2-3%. The effect of
COVID-19 was very evident in the short term on China's economic growth.

II. The economic growth effect of the outbreak focuses primarily on consumption,
investment, import and export:

Consumption: this outbreak started before the Spring Festival and had a major impact on
consumption. One of the highest consumption seasons is the Spring Festival, the most popular
traditional festival in China. The sales of the national retail and catering companies were more
than 1 trillion RMB during Golden Week in the 2019 Spring Festival. However, because of the
outbreak, consumption fell steeply during the Spring Festival in 2020. Catering, lodging, leisure,
entertainment and transport are among the worst-hit sectors, with nearly draining revenues.
Naturally, online shopping, on-line ordering and online entertainment remain relatively active
thanks to traffic monitoring and isolation, partly compensating for the above described adverse
effects. Some of the catering and entertainment demands will probably be released after the
outbreak ends, but losses due to lack of consumption during that time will also be difficult to
recover and some customer groups' power to spend will also be affected by the outbreak. All in
all, the overall growth rate of consumer goods' retail sales may decrease by 5-6 percentage points
in the first quarter. It should be noted that, after years of systemic supply changes to demand,
consumption has become China's number one driving force for economic growth, as
demonstrated in 2019 when consumption accounted for about 60% of China's GDP. The
epidemic has resulted in a major decrease in the share of consumption in GDP in 2020. This is
also one of the main explanations for the present outbreak of SARS in 2003.
Investments: Because of the outbreak, many companies have been unable to resume production
on schedule, and have caused their production orders to be canceled. Investments have, however,
suffered less than consumption in all respects. This was due to Chinese production industry's
general overcapacity. For example, both car sales and production decreased in 2019 in the
automobile market, with high inventories for dealers and manufacturers. The short-term
suspension of labor and production imposed by the employees' delayed return to work has no
actual effect on the companies. The resumption of work could be postponed in some
infrastructure projects, but work will quickly restart once the outbreak is over and there will be
an insignificant effect at year-end. The outbreak may also be a major incentive for further
investment in a number of large-scale ventures in medical infrastructures. The government has
also launched a range of rescue efforts for outbreak-affected enterprises, particularly small and
medium-sized enterprises, including expansionary tax policies, tax cuts and fee reductions that
have helped businesses retain the required level of investment. Increasing in 2020 investment
contribution to GDP growth was seen in view of the relatively low outbreak effect on
investments and the expected increase in investment stimuli by the Government.

Import and Export trade: As demand and investment growth slowed down, and the first-phase
deal was implemented in the Sino-United States trade war, import and export trading began to
decline further in 2020. Following the announcement on 31 January by the World Health
Organization that the outbreach was a global public health emergency (PHEIC), some countries
have taken short-term measures such as repatriate evacuation, entry constraints, flight
suspension, import and export and foreign direct investment (FDI) suffered as a result. On the
other hand, several people canceled their plans to fly abroad during the festival because of the
outbreak, which resulted in a major decline in imports of Chinese services.

In terms of unemployment, the unemployment rate has been increasing annually since 2018 to
2021, with majority of the people aged around 16 to 24. The main reason for this is the massive
population growth and also the corona virus played a huge roll in increasing it even more.

China's GDP growth rate is also on the decline as they reached their lowest growth rate since
1990 which was 6.1% in 2019. The main reason for this is because of the huge credit growth that
has been accumulating throughout the years and increased to 300% of its GDP in 2018 which is
also worrying all the investors around the world. This will hugely impact their foreign trade and
financial markets in the coming years.

III. The effect on various industries of the outbreak

Different effects of COVID-19 were observed for various industries in China. It has generally
had major impacts on tourism, offline entertainment, hotels, aviation, logistics or labour-
intensive production, while its effect on drugs, e-commerce, online entertainment and insurance
has been relatively favorable.

Subsequently, central and local authorities have taken a number of steps in support of disease
prevention and control materials development and supply and began progressively to implement
more macroeconomic policies in order to strengthen the economy and support firms. The Central
Leading Group of COVID-19 agreed on February 6 "to allow the resumption of normal
production to be resumed in an orderly way, while pursuing solid efforts in the prevention and
control of viruses" and sent a strong signal that the government would progressively restore
economic and social orders based on disease prevention and control. Many areas have issued
favorable municipal measures in support of virus-afflicted SMEs. Since February 6, 15
provincial governments have released guidelines to set specific rules and conditions for corporate
finance, housing rent, import and export and job stability, as well as for labor stability,
specifying the level of funding, time limits and government bodies responsible. In order to
manage diseases, the declaration and introduction of the above policies and actions were crucial
to the reduction of blows and negative effects, and positive results started to emerge.
SPAIN

Spain, one of the most affected countries by the Coronavirus, with 217,000 cases and almost
25,000 deaths. It begins to facilitate narrow lockdowns that have frozen its economy. The
Spanish economy is highly sensitive to the implications for a nation that is declining even before
the COVID-19 crisis reached more than 3 million unemployedIn 2019 it slowed and was
expected to slow further, with high unemployment 13.8% high government debt approx. 100
percent of GDP, high structural deficits, central government minorities and national chaos. The
Spanish economy was more vulnerable than others due to lockdowns.

Spain has recently been within the middle of an economic recovery. The COVID-19 catastrophe
has driven the nation into an uncommon downturn in financial movement in 2020, with GDP
falling by 12.8% (IMF), one of the biggest compressions in Europe. SMEs, which contribute to
over 70% of business, have been battling to remain above water (the share of obligation at
chance of powerless firms is evaluated by the IMF to rise by 7% - to approximately 37%). The
service industry was negatively affected, particularly the tourism industry (which accounts for
almost 12% of Spain’s economy).

Existing short-time work plans were strengthened to balance the COVID-19 crisis; be that as it
may, the pandemic broadened imbalances within the work showcase, with disturbances among
youthful, low-skilled, and brief specialists being especially cruel. In addition to that, the
government provided swift income and liquidity support to somehow make this time less
harmful. This led to the general budget to decline and be 7.3% in 2020. The in general
unemployment rate was evaluated at 16.8% at the conclusion of 2020 (from 14.1% one year
prior -IMF) and is anticipated to stay steady this year, sometime recently beginning to diminish
once more in 2022. One of the issues confronting the Spanish work advertise is the questionable
level of dynamic populace compared to the potential workforce, which signifies that numerous
individuals gave up on searching for business. Moreover, Spain remains a nation with solid
imbalances: agreeing to the most recent information by the Spanish Measurable Office, 20.7% of
the populace is at chance of poverty or social avoidance, with the proportion anticipated to
extend due to the long-term results of the COVID-19 catastrophe.
In a setting of developing action and work, with no significant disturbances, as leading the pack
up to the worldwide pandemic, the January figures would not have been especially striking.
However, figures were vital in light of the fact that expansion returned following nine months of
falling costs, bringing about a normal yearly decline of - 0.3% in 2020. Customers didn’t realize
in 2020 how much prices dropped because of the pandemic. Nowadays, because now less people
are quarantined, you can ask and they will be familiar with the price increase. The key is the
commotion of the market container, brought about by the overall financial plunge, dread of
contamination, and explicit limitations on development and movement in areas especially reliant
upon social communication.

INE released an estimate on May 30, that annual inflation eased from 2.1% in April to 1.9% in
May. April data showed that consumer prices jumped 1.4% over previous month, which was
0.7%. The rise was mainly because of the increase in price for clothing, alcoholic beverages, and
tobacco. The core inflation index added 1.2% in April, which was higher than March, which was
0.5%. Then, it decreased to 1.1% later which is the lowest from 19 months.
CONCLUSION

The pandemic of covid-19 has had far-reaching effects beyond disease propagation. The
coronavirus engulfed China first, with huge effects on China's economic development in a short
period of time. Many international brands, including Spain, faced retrogression because China
has become the largest exporter and producer in the world and all production and sales have been
discontinued due to a blocking.

The official finding of the pandemic impact on the economy of China is that the nations already
have an economic contraction which has already been forecast to occur globally in the context of
government and macroeconomic policies.

As for Spain, results demonstrate the relevance for the explanation of the COVID 19 crisis of
supply and demand shocks. Thanks to these stabilizing measures, the annual decline in GDP
moderates at least 7.6 points during the heaviest part of the crisis. If Spain is to obtain 1.5 to 2.25
percentage points of the GDP from the EU, operation in 2024 could grow to two to three
percentage points. The The Spanish economy will take several years to recover according to the
IMF’s latest economic health check and there are serious threats to the outlook.
APPENDIX (A)

Source: World Bank national accounts data, and OECD National Accounts data files.

*The unemployment rate increased in China from 2018 to 2020 by 0.7%

*The unemployment rate decreased in Spain by 3.12% from 2017-2019, then it increased again
by 1.57% in 2020.
APPENDIX (B)

Source: World Bank national accounts data, and OECD National Accounts data files.

* The inflation rate in China decreased by 0.3% in 2018 and 2019

* The inflation rate in Spain decreased by 0.975% in 2019
APPENDIX (C)

Source: World Bank national accounts data, and OECD National Accounts data files.

* The real GDP in China increased by 1.334 Billion dollars and the nominal GDP increased by
1.97 Billion dollars
APPENDIX (D)

Source: World Bank national accounts data, and OECD National Accounts data files.

* The real GDP in Spain decreased by 112 Million dollars and the nominal GDP increased by
259 Million dollars.
APPENDIX (E)

Source: World Bank national accounts data, and OECD National Accounts data files. And IMF.
APPENDIX (F)

Source: World Bank national accounts data, and OECD National Accounts data files. And IMF.
REFERENCES

3 Reasons China's Slowdown Is Cause for Concern. Investopedia. (2021). Retrieved 25 April
2021, from https://www.investopedia.com/articles/markets/062016/3-reasons-chinas-slowdown-
cause-concern.asp#:~:text=with%20the%20U.S.-
,China's%20GDP%20growth%20in%202019%20was%206.1%25%2C%20the%20slowest%20y
ear,biggest%20economy%20in%20the%20world.

(2021). Retrieved 26 April 2021, from

https://www.imf.org/external/datamapper/LUR@WEO/CHN.

(2021). Retrieved 26 April 2021, from

https://www.imf.org/external/datamapper/LUR@WEO/ESP.

China: Inflation rate | Statista. Statista. (2021). Retrieved 25 April 2021, from
https://www.statista.com/statistics/270338/inflation-rate-in-china/.

Five Charts on Spain’s Economy and Response to COVID-19. IMF. (2021). Retrieved 26 April
2021, from https://www.imf.org/en/News/Articles/2020/11/12/na111320-five-charts-on-spains-
economy-and-response-to-covid-19.

GDP (current US$) - China | Data. Data.worldbank.org. (2021). Retrieved 25 April 2021, from
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2020&locations=CN&start=2005

(2021). Retrieved 25 April 2021, from https://www.cnbc.com/2021/03/15/chinas-young-people-

are-still-having-a-hard-time-finding-jobs.html.

The economic context of Spain - Economic and Political Overview - Nordea Trade Portal.
Nordeatrade.com. (2021). Retrieved 25 April 2021, from
https://www.nordeatrade.com/dk/explore-new-market/spain/economical-context.
Spain Inflation Rate (CPI) - Spain Economy Forecast & Outlook. FocusEconomics | Economic
Forecasts from the World's Leading Economists. (2021). Retrieved 25 April 2021, from
https://www.focus-economics.com/country-indicator/spain/inflation.

Spain | Inflation: data confirms perceptions | BBVA Research. Bbvaresearch.com. (2021).

Retrieved 25 April 2021, from https://www.bbvaresearch.com/en/publicaciones/spain-inflation-
data-confirms-perceptions/.