GDP fell. What's the impact?

Gross Domestic Product or GDP is an indicator to show if the net worth of produce in a country during a financial year has risen or declined. A GDP fall of 24% means the country’s total produce for that year fell by 24%.

Covid-19 resulted in Global GDP (Gross Domestic Product) plunging to the worst levels in year 2020 that were not seen since 1945-46 i.e., right after the World War II ended in 1945.

Global GDP
Global per capita GDP since 1876 
Source: World Bank

Does such a drop mean the end of the world? No. Will the world recover? Of course, YES. It did in the past and it will again in the future as this pandemic becomes a thing of the past. Remember, Germany's GDP fell by a whopping 66% around the same time. But that didn't stop Germany's growth in later years.

Worst GDP Decline by Country
Worst GDP Decline

How would the GDP fall impact while we wait for the trend to reverse? 

First, let's understand what causes the GDP aka a nation's produce to decline.

  1. Not surprisingly, it could happen when (agricultural) produce declines due to natural calamities or manufacturing and production, not to mention the services sector is severely impacted as is the case in the case of Covid-19
  2. Loss of jobs and low buying power
  3. Lack of spending and therefore lack of demand

It is normal to think that a low supply (in such cases) would increase the demand and drive prices up (as was case in the initial days with sanitizers etc) but then we have also the case of low supply and low demand which destroys industries (e.g. airlines) altogether resulting in more job losses in such sectors and continues to have a ripple effect on related industries. Fewer paychecks implies less spending power and hence reduced demand resulting in production being cut down. You can see how it can have a negative impact on GDP.

Nothing lasts forever (including Pandemics) and demand would eventually go up and so would the GDP. Get used to these cycles and plan for rainy days.