How COVID-19 shock will drive the economy and climate? A data-driven approach to model and forecast

Abstract

The pandemic shock puts the world on quarantine and paused economic operations that affected energy consumption and economic output. This study analyzed the impact of the COVID-19 shock on GDP, energy consumption, and climate change then forecasted the situation until 2032 using the system dynamic modeling approach. The outcomes reveal that the pandemic shock will decrease the growth by 1.3% in 2020 and 1.32% in 2021. The current shortfall, low energy consumption, and delay in completion of energy-related projects can reduce the GDP by 5.2% in 2020. The effect will penetrate the system and will cause further losses in the upcoming years. The energy consumption and quarantine situation will improve the climate situation and drop the average temperature by 0.049 and 0.021 oC in 2020 and 2021. The aggregate demand and supply side measures such as national spending, lowering the lending rate, and cuts in income taxes can help in diffusing the situation. The government should start operations on ongoing energy projects, give relaxation to SME’s with tight SOPs to secure jobs, and prevent possible GDP losses. The decline in oil prices provides an opportunity to cut fossil fuel subsidies and implement a carbon pricing mechanism.