The several ways in which politics can affect an economy are regime type, political stability or instability, policy management and corruption.
- Regime type: is a country’s government structure. This involves things like whether a country is democratic, dictatorial, communist, or something else entirely. The type of regime has an impact on the policies that affect personal and public economic growth. For instance, People in a democratic country can get modest business loans and establish their own firm. The company can grow at a rapid pace and pay employees varied rates depending on the type of job they accomplish. However, in a communist country, there are tight restrictions in place, such as paying all employees equally, which can have an impact on how firms run and limit economic development.
- Political stability or instability: refers to the structures of a government’s dependability and endurance. The less risky a country’s political system is, the less risky it is for a corporation to operate there. Countries with a high danger of terrorism or internal turmoil are less stable. As a result, starting and running a business in the region is both costly and risky. When a country goes to war, business suffers, and the currency exchange rate, or the value of the country’s currency in comparison to that of other countries, suffers as well.
- Political management: refers to the government’s ability to monitor and enforce domestic and foreign policies and laws. Businesses prefer to operate in countries where copyright and piracy laws are not enforced. Failure to enforce copyright or piracy rules can result in a company losing money, which raises the risk of doing business in the region. A corporation that wishes to sell music, for example, may reconsider because it will not be profitable.
- Level of corruption: It determines the extent to which people and businesses functioning in a region are subjected to unfair, immoral, and unlawful practices. Bribing officials, bribing local firms for resources, or paying to keep competitors out of the market are all examples of corruption. Consider a scenario in which a business pays the government to keep a competitor out. This curtails further economic progress and may result in a monopoly, making services incredibly expensive.
The impact of Covid-19: According to the International Monetary Fund (IMF), the global economy would contract by more than 3% in 2020, the sharpest downturn since the Great Depression of the 1930s. Covid-19-related interruptions in the United States have resulted in millions of people filing for jobless assistance. The amount was 20.5 million in April, and it is projected to climb as the pandemic’s impact on the US labour market intensifies. According to Reuters, more than 36 million people have applied for jobless benefits since March 21, accounting for nearly a quarter of the working-age population. According to the IMF, the world economy would grow at a rate of -3 per cent in 2020, which is “much worse” than the global financial crisis of 2009. This year, the economies of the United States, Japan, the United Kingdom, Germany, France, Italy, and Spain are predicted to decrease by 5.9, 5.2, 6.5, 7, 7.2, 9.1, and 8 per cent, correspondingly. Advanced economies have been impacted the worst, with a combined growth rate of -6 per cent predicted in 2020. The economy of emerging markets and developing economies is predicted to decrease by 1%. If China is not included in this group, the 2020 growth rate is anticipated to be -2.2 per cent. China’s GDP decreased by 36.6 percent in the first quarter of 2020, while South Korea’s output fell by 5.5 per cent, owing to a strategy of vigorous testing, contact tracing, and quarantining rather than a lockdown.
The GDPs of France, Spain and Italy all decreased by 21.3, 19.2, and 17.5 per cent, correspondingly, in Europe. Global industrial activity has been harmed as a result of the decrease in travel. Oil prices plummeted even more in March, as numerous countries imposed lockdowns, affecting the transportation sector, which represents 60% of the total oil demand. Food prices are expected to fall by 2.6 per cent in 2020, owing to supply chain interruptions, border delays, food security issues in Covid-19-affected regions, and export limitations, according to the IMF. Several developed economies around the world have implemented assistance programmes. While India’s economic stimulus plan is 10 per cent of GDP, Japan’s is 21.1 per cent, United States (13 per cent), Sweden (12 per cent), Germany (10.7 per cent), France (9.3 per cent), Spain (7.3 per cent), and Italy (5.7 per cent). Extensive monetary and fiscal stimuli will be necessary to be organized on an international basis for optimal effectiveness, and “would be most beneficial to raise spending in the recovery period,” combined with clear and effective communication