COVID-19 has brought unprecedented challenges to the world economy that have never been experienced before, including a sharp decline in economic output and substantial increase in the level of unemployment. The aim of this paper is to critically discuss the effects caused by COVID-19 on the world economy and financial markets, the actions taken by the governments and corporations to withstand these effects, and what Islamic economics and finance can offer to improve the resilience of the economy while the pandemic is still ongoing. To address this aim, we adopt both deductive and inductive research philosophical approaches as this enables us to understand the economic implications brought about by COVID-19 systematically. We base our analysis on various data sources including government reports, reports published by international organizations, such as the IMF (International Monetary Fund), OECD (Organization for Economic Co-operation and Development), the World Bank, and other relevant secondary data sources. Our analysis shows that the pandemic has contributed to a sharp fall in economic output, to substantial increase in unemployment, to rise in markets’ volatility, and to the deterioration in the financial status of corporations, particularly in certain industries such as airline, hospitality, tourism, and energy. The review of the governments’ actions taken across the globe in response to these effects indicate a variation in the monetary and fiscal measures introduced in terms of their scale and scope. The same applies to the decisions made at corporate level. The analysis reveals that Islamic finance and economics provides a number of solutions to the COVID-19 economic effects through its key principles and investment vehicles, including profit and loss sharing, takāful, and waqf.