What Is The Economic Environment? Definition, Includes And Examples

After years of solid economic growth, the world experienced a surprise in 2020: the pandemic and the health crisis plunged the international finance into a deep recession. Several lockdowns in different countries and on different continents led to notably disruptions in production, trade and supply chains. All intensive sectors such as the travel, gastronomy and the accommodation as well as the entertainment sector were particularly affected.

Global output fell by 3.5%, resulting in a decline in financial activity across all industries and increased unemployment. Economic output is expected to recover in 2022 and be slightly above 2021 levels. However, there are unusually large uncertainties: The uncertain further course of the pandemic and the upheavals in the local finance, but also the effects of government measures to support the finance and international and local spill-over could have a notably impact on the expected recovery. World trade collapsed by more than 10% in 2020, due to disruptions in international supply chains and trade restrictions. A return to the framework and structures of the time before the crisis will depend on whether a vaccine or drug to contain the Covid can be successfully implemented worldwide.

The pandemic waves, which are progressing at different speeds from location to location, are leading to enormous disharmony in financial development on the various continents. GDP for example fell by 7% in 2020, while emerging and developing Asia saw just 1% lower GDP due to rigorous tracing measures and were therefore able to get back on track for growth at the end of 2021.

The financial environment in the European countries roughly followed the average; Depending on the regional duration and severity of the lockdowns and the industry composition of the gross domestic, the EU-wide decline in GDP was between -2% and -10%. Meanwhile, massive government spending in all countries to support recovery has pushed government debt to high levels.

The reasons for this were Covid-19 related restrictions in the countries, but also adverse effects in the most important sectors. Industry and the provider suffered persistently, while other industries were able to recover as lockdown measures were eased. In middle Europe, GDP fell by 7.5% in the pandemic, due to stricter lockdown measures and the larger share of the heavily affected tourism industries in the finance. 

International oil demand fell by 8.8 mn two years ago after hitting a new high level of 100.0 mn in the previous year. The spread of the pandemic from Asia to the US in the second half of 2020 led to various lockdown measures and had a corresponding bad impact on demand for almost all oil products.  Aviation fuel and kerosene saw an unusually sharp decline of 3.2 mn due to air travel and mobility restrictions. This sector will require a multi-year recovery to return to 2019 levels as international picks up again.

 Gas demand worldwide fell by only around -5% as the impact of the pandemic on gas stock basics was less than on oil demand. On the other hand, gas supply worldwide continued to grow; an investment cycle in recent years was decisive for this. The larger cyclical oversupply led to exceptionally low gas prices in USA and Asia.