The new coronavirus has taken its toll on the global economy (COVID-19). The human experience is unbelievably terrifying in the absence of a vaccine or medicine, resulting in unprecedented economic, social, and psychological trauma! Experts from all over the world are attempting to forecast the potential economic impact on national and global economies, but they are finding it extremely difficult to predict the current and future course of economic impact.
COVID deserted everything
Machines have stopped working, streets are deserted, and offices have closed around the world. The deadly virus has brought the entire world to a standstill on an unprecedented scale. World wars had wreaked havoc on the world, but machines continued to run smoothly outside of the conflict zones. However, understanding and moving on during the post-corona era will be difficult. Three recent statements from UN institutions shed light on the potential impact of the novel virus on the world:
- On March 27, 2020, IMF Chief Kristalina Georgieva stated, “Thanks to COVID-19, the global economy is now in a recession, and it will be worse than the one seen in 2009 following the global financial crisis.” We should not take small steps now when we know that this is a massive crisis; the world economy has never stood still. Containing the virus and having an effective, coordinated response to the crisis will determine the length and depth of this recession.”
- On April 1, 2020, UN Secretary-General Antonio Guterres warned that the world is facing the most difficult crisis since World War II, with a pandemic threatening people in every country and a recession “likely without precedent in recent history.” He went on to say that the disease’s combination with its economic impact could lead to “heightened instability, unrest, and conflict.”
- FAO Director-General, Qu Dongyu, expressed concern in an op-ed published on the Organization’s website (on March 31, 2020) that restrictions on movement, as well as basic aversion behavior by workers, may prevent farmers from farming and food processors (who handle most agricultural products) from processing, and that a lack of fertilizers, veterinary medicines, and other inputs may also affect agricultural production. He stressed the importance of collaborations between governments and a wide range of stakeholders, citing the need for a “global response to a global challenge.” The world has enough food, but the supply chain needs to be streamlined and functioning properly— scarcity is a possibility due to supply bottlenecks.
Difficult to assess the global economic impact
It was difficult enough to assess the global economic impact of the novel virus after more than three months (by early April 2020). However, some early reports provided some insight into it; the perspectives of the first two of these reports are summarised below:
- Special Report of the UNCTAD On March 30, 2020, the United Nations Conference on Trade and Development (UNCTAD) published a special report on the potential impact of the novel coronavirus on the global economy. The major part of its analysis is summarised below: “The COVID-19 Shock to Developing Countries: Towards a ‘whatever it takes’ program for the two-thirds of the world’s population being left behind”
- The global economy will enter a recession,’ with India and China likely exceptions; however, developing economies will be severely impacted. The report did not go into detail about why and how India and China will be the exceptions as the world suffers from a recession and a drop in global income, which will affect developing countries as well.
- Developing countries will face a US$ 2-3 trillion financing gap. With two-thirds of the world’s population residing in these countries, the body has called for a US$ 2.5 trillion rescue package.
- In the next two years, commodity-rich exporting countries will see a USD 2 trillion to USD 3 trillion drop in foreign investment;
- The speed with which the pandemic’s economic shockwaves have hit developing countries is dramatic, even when compared to the global financial crisis of 2008. The shock’s economic consequences are still being felt and are becoming more difficult to predict, but there are clear signs that things will get much worse for developing economies before they get better.
- In the two months since the virus spread beyond China, developing countries have suffered massive capital outflows, rising bond spreads, currency depreciation, and lost export earnings, owing to falling commodity prices and declining tourist revenues, among other factors.
- Because many developing countries lack the monetary, fiscal, and administrative capacity to respond to this crisis, the consequences of a combined health pandemic and global recession will be catastrophic for many developing countries, halting progress toward the Sustainable Development Goals (SDGs).
- Even as advanced economies grapple with the challenges of dealing with an expanding “informal” workforce, developing countries continue to face similar challenges, exacerbating their difficulties in responding to the crisis.
- Advanced economies and China have recently put together massive government packages that, according to the G20 leading economies, will give their economies a $5 trillion lifeline. This is an unprecedented response to an unprecedented crisis, and it will reduce the shock’s physical, economic, and psychological effects.
- Advanced economies have pledged to do “whatever it takes” to prevent their businesses and households from suffering significant financial losses. However, if G20 leaders are to keep their promise of “a global response in the spirit of solidarity,” they must also take action on behalf of the 6 billion people who live outside the core G20 economies. While the full details of these stimulus packages’ have yet to be revealed, the UNCTAD estimates that they will result in a demand injection of US$ 1 trillion to US$ 2 trillion in the major G20 economies, as well as a two-percentage-point turnaround in global output.
Looming “financial tsunami
In the face of a looming “financial tsunami” this year, the report proposes a four-pronged strategy for turning international solidarity into concrete action —
- A $1 trillion liquidity injection; a kind of “helicopter money” drop for those left behind at the IMF by reallocating existing special drawing rights (SDRs) and adding a new allocation (that will need to go considerably beyond the 2009 allocation made in response to the global financial crisis).
- For distressed economies, a “debt jubilee.” A temporary halt in sovereign debt payments should be followed by substantial debt relief. The German debt relief program, which canceled half of the country’s outstanding debt after WWII, could serve as a model. On that basis, an independent body should oversee the cancellation of around $1 trillion this year.
- A ‘Marshall Plan’ for health recovery, funded by some of the missing official development assistance (ODA) that development partners have long promised but not delivered. An additional $500 billion, or a quarter of the missing ODA over the last decade, should be set aside for emergency health services and related social relief programs, mostly in the form of grants.
- Finally, ‘capital controls’ should be given a legitimate place in any policy regime in order to stem the flow of capital outflows, reduce illiquidity caused by sell-offs in developing country markets, and stop currency and asset price declines. The proposed package is comparable to the amount that would have been delivered to developing countries over the last decade if countries in the OECD’s Development Assistance Committee had met their 0.7 percent ODA target.
Economist Intelligence Unit Report As per the exclusive report of the world-renowned Economist Intelligence Unit (released on March 30, 2020), South Asia will be deeply impacted by the pandemic:
- The pandemic caused by the novel virus is expected to dampen economic growth substantially in the South Asian region, including India.
- Preventive steps taken by the governments will limit the movement of people and lead to demand-side shock, while the closure of factories and businesses will lead to a supply-side shock.
- The stimulus provided by the central banks and governments will not come close to offsetting the loss of economic activity.
There are three factors that make the South Asian region most vulnerable—
- Dense living conditions;
- Low hygiene awareness; and
- Overburdened healthcare systems.
South Asia faces two healthcare challenges—
- Chronic underinvestment in healthcare infrastructure
- The low number of doctors and hospital beds
The Economic Conclusion
While governments around the world were preoccupied with meeting their citizens’ immediate needs, they were also aware of future needs, enacting stimulus and relief packages. Meanwhile, while the latest UN World Happiness Report-2020 does not include data on the impact of the coronavirus, its editors have good news for the world: according to them, happiness will rise during these difficult times. The global community response has been overwhelmingly positive and compassionate, with donations pouring in from corporations, non-governmental organizations, and individuals. This period of global crisis will pass, but it will require extreme caution, courage, and compassion from everyone.