Covid-19 will hit the global economy hard, say experts

Covid-19 will hit the global economy hard, say experts thumbnail
Global economy has been severely affected with the rapid spread of the coronavirus disease (Covid-19), with both supply and demand chain disruptions arising for goods and services. As increasing number of cases are being reported around the world, major stock market indices have fallen by more than 20% from their highs in last 2 months…

Global economy has been severely affected with the rapid spread of the coronavirus disease (Covid-19), with both supply and demand chain disruptions arising for goods and services. As increasing number of cases are being reported around the world, major stock market indices have fallen by more than 20% from their highs in last 2 months and have entered in the bearish territory/region. International oil prices have also crashed by more than 50% since World Health Organisations’ (WHO) first meeting on Covid-19 on 24 January amid lowering demands and increased supply glut. The effects of Covid-19 on global businesses are also becoming visible, with companies scaling down operations, asking employees to work home, slashing production targets. Sectors such as aviation, tourism, hospitality are particularly affected. In its interim economic assessment report in first week of march, the Organisation for Economic Co-operation and Development (OECD) has estimated that COVID-19 will lower global GDP growth by 50 basis points for 2020 (from 2.9% in 2019 to 2.4%).100 basis points is equal to one percentage point.The Asian Development Bank, in a press release in the first week of March, stated that the Covid-19 outbreak would have significant impact on developing Asian economies. It had estimated a global economic loss of Covid-19 between $77 billion to 347 billion or 0.1% to 0.4% of global gross domestic product (GDP). Even with a moderate case estimate when precautionary behaviours are eased in 3 months, it had estimated that global losses could reach $156 billion or 0.2% of global GDP. It had stated that while China would account for $103 billion of those losses—or 0.8% of its GDP, the rest of developing Asia would lose $22 billion, or 0.2% of its GDP. Since the ADB release, the severity of the crisis has only intensified outside China, which may lead to revised estimations. According to a Goldman Sachs report (in the last week of February), the disruption in economic activity in China due to Covid -19 has resulted in the largest commodity demand shock since global financial crisis of 2008.The economic slowdown in China due to Covid-19 had resulted in both manufacturing and non-manufacturing activity Purchasing Manager Index (PMI) to fall to historic lows in February 2020. The PMI acts as economic indicator.According to a JP Morgan report, by its chief global strategist Dr David Kelly, the negative impact of the social distancing will be majorly felt in the second quarter of the calendar year 2020. The report says, “The negative impact of social distancing should begin to hit the economy hard, with very sharp declines likely in cruises, airlines, hotels, casinos, sporting events, movies, theatres and restaurants among other industries.” It predicts that all this will result in a negative quarter growth for both the United States and global economy which, in turn, would result in job losses in following months. The report predicts that the suddenness and severity of this economic slowdown could make unemployment rise at a faster pace. It also suggested that “the impact of the virus on the economy and markets should also be softened by monetary and fiscal policy.”Kristalina Georgieva, the managing director of International monetary Fund(IMF) in her recent blog suggested that additional fiscal stimulus by governments would be necessary to prevent long-lasting economic damage to the global economy. Acknowledging the fiscal measures already announced that are prioritizing health spending she stated that –“Governments should continue and expand these efforts to reach the most-affected people and businesses—with policies including increased paid sick leave and targeted tax relief.” Apart from individual country actions, the IMF chief also suggested that –“as the virus spreads the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.” Fiscal stimulus is an attempt by government to increase economic activity by reducing taxes and increasing government spending activity.Gita Gopinath, chief economist of the International monetary Fund (IMF), in a blog last week, suggested targeted economic policies by governments to help affected households and businesses. While stating that borrowing costs could rise as banks suspect consumers and firms may be unable to repay their loans on a timely basis, the chief economist suggested, “Central banks should be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small- and medium-sized enterprises, which may be less prepared to withstand a sharp disruption.”

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