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The impact of COVID-19 is already being felt in the American economy, but the impact is even greater for lower-income households. Lower-income adults, Hispanics, and Asians are more likely to report that someone in their household has lost a job or cut their pay since the outbreak began in February 2020.
Precautionary Saving
The COVID-19 crisis is causing doubts about the prudent saving habits of corporate America. Many companies suffered losses, and households were shut down or isolated. Before the global financial crisis, corporate net lending activities were increasing. This was partly due to uncertainty over the global economy and the increased reliance on internal funds to pay for R&D expenditures.
The recent coronavirus crisis has dampened the corporate saving trend, but the effect will be long-lasting. Companies have benefited from higher liquidity buffers and equity capital, but risk perception is likely to increase.
The COVID virus is expected to affect the U.S. economy in several waves. This could prolong the current recession and change the V-shape of the recovery. A prolonged recession may reduce the marginal propensity to consume due to the increased risk of unemployment. This could lead to a shift towards precautionary saving. As a result, the equilibrium interest rate will be further depressed.
Loss Of Job
The recent coronavirus outbreak has led to a loss of jobs for a large percentage of the American population. According to Priority Plus Financial, nearly a quarter of all adults in the United States say that they or someone in their household has lost a job since the outbreak began. The most affected groups are lower-income adults and young adults.
These findings are especially alarming given that workers of color are frequently the first to be laid off during an economic downturn and the last ones rehired after the economy recovers. Further, structural racism may worsen these trends and extend the economic fallout for communities of color.
Impact On Private Investment
The impact of the COVID-19 crisis on the private investment market is still uncertain, but this novel coronavirus’s economic and behavioral implications are immense. The epidemic’s rapid spread is affecting the M&A and venture capital markets in the U.S., and the number of cases and deaths continues to rise.
Since the global financial crisis, institutional investors have increased their private equity allocations. These investors are still expecting outsized returns from private equity. Despite the current downturn, there is no signal that the trend will reverse. The impact on private investment will depend on how funds respond to the “new normal” and how they can “recession-proof” their portfolios and fortify their portfolio companies’ resilience.
Foreign direct investment has been affected by the COVID-19 pandemic. During the first year of the pandemic, foreign direct investment dropped by 42 percent, but the subsequent recovery period saw many projects delayed or revised. Nevertheless, the pandemic has provided a unique opportunity to initiate key reforms crucial to achieving the SDGs.