The Impact of COVID-19 on the UAE and the USA

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Table of Contents

Introduction
The Impact of COVID-19 on Economic Indicators
Monetary and Fiscal Policies
Recommendations
Conclusion
References

Introduction

The crisis triggered by the spread of the coronavirus infection has affected all of the world’s countries. The economic recession resulting from the COVID-19 pandemic led to changes in their GDP, unemployment and inflation rates, and the economy’s main sectors. Even though its impact varies from country to country, it brings new problems to all of them. The most severe consequences of the current crisis are poverty and inequalities worsened by these circumstances (Martin et al., 2020). These indicators are directly related to the global shifts in the economy specified above. Their consideration based on the data of two regions will reveal the interdependence of all outcomes of these processes. Hence, this paper aims to compare the situation in the USA and in the UAE to demonstrate their similarities and differences.

The Impact of COVID-19 on Economic Indicators

The first parameter allowing to contrast the economic positions of the selected countries is their GDP. As follows from the recent report, the overall balance of the United States is expected to decline by 5.9 percent by the end of the year compared to an increase of 2.3 percent in 2019 (“The United States,” 2020). From this perspective, the situation of the UAE seems to be more optimistic since the expected change in GDP is the decline by 3.5 percent in contrast to the increase of 1.3 percent in the past year (“The United Arab Emirates,” n.d.). These indicators allow concluding on a more optimal position of the UAE and, therefore, a lesser impact of the crisis.

The second characteristic for comparison is the countries’ inflation rates in the prices for goods and services. In the case of the United States, it has dropped from 1.8 to 0.6 percent, which is faster than over the previous two years (“The United States,” n.d.). In the United Arab Emirates, this parameter has risen to -1 from -1.9 from the last reporting period, and its dynamics are also more positive than the results of the United States’ economic activity (“The United Arab Emirates,” n.d.). In this way, it adds to the advantages of the country that might facilitate further recovery from the crisis.

The inflation rates of the countries mentioned above are complemented by the third parameter worsening the overall situation, which is the unemployment rate. In the United States, it reached 10.4 percent, which means an increase of 6.7 percent from the past year (“The United States,” n.d.). As for the United Arab Emirates, this indicator was 2.4 percent in contrast to 2.3 percent in 2019 or, in other words, there was only a slight change in this area (“Unemployment, total,” n.d.). Therefore, it also demonstrates the favorable position of the latter compared to the situation in the United States.

The fourth and final parameter for comparison is the impact of the crisis on the main sectors of the economy of the two countries. It reflects the difficulties they face regarding their principal economic activity. From this perspective, the United Arab Emirates’ losses are related to the food and beverage industry, renewable energies, the ICT industry, the healthcare industry, and real estate and construction (Altios, 2020). They are reflected in low demand, investor confidence, cost-cutting, and customer behavior (Altios, 2020). In the United States, the most harm was caused for the leisure and hospitality sector, education and health services, business services, retail trade, and manufacturing (Economic Commission for Latin America and the Caribbean, 2020). Hence, it can be concluded that both countries have similarities in the sectors that suffered from COVID-19.

The comparison of the two countries in terms of the economic impact of the spread of coronavirus infection revealed several differences and only a few similarities between their development patterns. From this perspective, the principal indicators allowing to distinguish the USA and the UAE’s paths during the crisis are their GDP and inflation, and unemployment rates specified above. Hence, the situation of the UAE is more favorable compared to the one of the United States. As for the similarities, they are related to the spheres of economic activity influenced by the pandemic and include the healthcare industry and business services.

Monetary and Fiscal Policies

The circumstances hindering the development of economies required specific actions allowing the governments to overcome such obstacles and decrease their negative influence. In this way, their approaches differ depending on the initial position and the available means. The United Arab Emirates employed such fiscal measures as the allocation of funds to support the private sector, the reduction in fees and taxes, and the promotion of infrastructure initiatives (“Policy responses,” n.d.). They were complemented by the provision of water and electricity subsidies, simplification of business procedures, and commercial lease payments in the affected industries (“Policy responses,” n.d.). As for monetary policies, they included the change in bank reserve requirements, the provision of zero-interest loans, and the permission to use excess capital buffers (“Policy responses,” n.d.). Hence, they efficiently addressed all emerging issues and potential problems.

The actions of the United States were also directed towards the needs of banking institutions and small and medium-sized enterprises. The former was addressed through the purchase of securities, support of the flow of credits, banks’ supervision, the encouragement to use capital and liquidity buffers for lending to borrowers, and various mortgage regulations (“Policy responses,” n.d.). The latter, in turn, were supported by executive orders intended for the provision of unemployment benefits, student loans, payroll taxes, and guarantees to businesses (“Policy responses,” n.d.). These decisions were accompanied by such fiscal measures as the introduction of Coronavirus Aid, Relief and Economy Security Act, Coronavirus Preparedness and Response Supplemental Appropriations Act, and Families First Coronavirus Response Act (“Policy responses, n.d.). These responses were as efficient as the actions of the UAE, and they have specific similarities.

The principal uniting factor of the two countries under consideration is their well-thought consideration of all the aspects of COVID-19 influence on their economies. They both addressed these issues promptly, which allows predicting good chances of their recovery in the future. The USA and the UAE also implemented specific fiscal initiatives, such as reducing taxes and providing benefits to citizens. However, the former’s policies were more oriented on individual fees, whereas the latter intended to support private entities first. In monetary measures, the USA and the UAE were both focused on loans and mortgages, and their actions in this sphere were similar. Thus, the response of both countries to the economic recession was adequate.

Recommendations

The most critical recommendation aimed at improving the economies of the countries under consideration is the development of measures regarding exchange rates and balance of payments. As can be seen from various regions’ analysis, both the USA and the UAE did not take any actions in this area, whereas this aspect is essential (“Policy responses,” n.d.). Therefore, they should work in this direction to improve the overall situation. Their initiatives should include the adjustment of exchange rates and the interventions of the central bank with the purpose to avoid the undue volatility of the market. In this way, the shifted inflation rates and the change in other economic indicators will not present a threat.

Another method to positively affect the USA and the UAE’s economic situation is the proposal of long-term solutions to deal with such a crisis. The already implemented fiscal and monetary initiatives are efficient for now. Nevertheless, they do not provide the plans that would make recovery possible. From this perspective, the governments under consideration should foresee the uneven nature of this process and include various factors that can prevent them from improving the economies. Hence, the stabilization of their situations, in the long run, should become a priority and complement the existing projects and measures.

Conclusion

By and large, the economic recession in the USA and the UAE triggered by COVID-19 implies the presence of particular similarities and differences in the processes. The former is primarily related to the affected industries, GDP, inflation, unemployment rates, as well as certain aspects of their monetary and fiscal policies. In turn, the latter is connected to the varying priorities since the USA’s measures are primarily intended for people, whereas the UAE’s initiatives are focused on businesses. However, they still have the same issues that have not been addressed adequately. Both countries need to adjust exchange rates, balance payments, and develop long-term solutions to ensure their recovery.

References

Altios. (2020). Understanding the impact of COVID-19 in the UAE and GCC region. Web.

Economic Commission for Latin America and the Caribbean (ECLAC). (2020). Impact of COVID-19 on the United States economy and the policy response. Web.

Martin, A., Markhvida, M., Hallegatte, S., & Walsh, B. (2020). Socio-economic impacts of COVID-19 on household consumption and poverty. Economics of Disasters and Climate Change, 4(3), 453-479. Web.

Policy responses to COVID-19. (n.d.). International Monetary Fund. 2020, Web.

The United Arab Emirates. (n.d.). International Monetary Fund. 2020, Web.

The United States. (n.d.). International Monetary Fund. 2020, Web.

Unemployment, total (% of total labor force) (modeled ILO estimate) – United Arab Emirates. (n.d.). The World Bank. 2020, Web.

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