Going Viral - How Coronavirus affects the world economy
Posted on: 2020-04-08 16:55:59
First Prize Name: Shreya Murarka College: St. Stephen's College, University of Delhi
It takes an intricately integrated and globalised world such as ours for a microbe originating in one province of China, to go viral and engulf the world economy and cloud the present, the future and our very survival in uncertainty.
With “social distance” being the only way to allocate countries’ scarce healthcare facilities and financial resources among citizens while ensuring their survival, almost any industry which requires its consumers to step outside the safety of their homes and into the danger of human contact, has taken a severe blow. The travel, tourism, hospitality, manufacturing (of non-essential commodities), restaurant and theatre industries have almost come to a standstill, while the education and retail industries are in an earnest attempt to stagger along through a shift to online delivery of education and products respectively.
What this has led to is an unprecedented global demand shock and supply shock due to the interlinkages in value and supply chains across the globe. While some industries such as automobile have come to a temporary halt due to stoppage of input supplies from China and record low demand, others are trying to find innovative alternative solutions and business models to weather this crisis. There has been and will continue to be massive laying off of workers- with contract workers in the informal economy and self- employed workers in the gig economy, being the most vulnerable of the lot. Top managements and salaried employees have also had to take pay cuts, leaving everyone with less cash in hand.
Of course, online retail, food delivery, television, online streaming services, essential good manufacturing, digital media and marketing and ed-tech industries have seen a surge. However, in the short term, with discretionary spending witnessing a steep decline the world over, recessionary trends seem imminent. With the excessive uncertainty surrounding all sectors of around 198 affected economies, it is almost impossible to accurately forecast the GDP decline due to this crisis. However, according to Harvard Business Review, the most likely scenario is that of a V-shaped recovery where growth eventually rebounds- as was the case after previous pandemic- induced recessions of SARS, Hong Kong Flu and Spanish Flu.
This global pandemic has made the entire world aware of the importance of investment in healthcare R&D and infrastructure- almost with an ultimatum- and one immediate positive outcome once we emerge successful in the battle against this novel virus will be the increased focus on improved access and quality of healthcare. Additionally, this will also lead to paradigm shifts in the fields of education and academia which, due to resistance and human inertia, had refused to go beyond conventional in-person methods. It will also gear the focus towards working from home and online skill-building, providing our human capital one resource they lacked- time. Another benefit to the world economy is the dramatic reduction in pollution, which had seemed impossible to achieve for the pre-Coronavirus, “healthy” world.
The Coronavirus outbreak has forced individuals, governments and the world economy to acknowledge problems they have long been trying to avoid- the stark inequalities in income and wealth, which make the life of the rich seem more valuable than that of the poor; the clash between privacy breach due to surveillance mechanisms of the government (as introduced by China and Israel to monitor the health of citizens) and health; and our increasing vulnerability due to an extremely globalised and interdependent world economy.
The long term impact of Coronavirus on the world economy will depend on the decisions made in the face of the crisis- Will we be able to address the stark inequalities of the time, which will only worsen in the aftermath of the crisis? Will we choose the path of citizen empowerment or totalitarian surveillance- which once legitimised by this emergency, may outlive it and become the order of the day? Will we now move to closed economies of nationalist isolation, or try to overcome this crisis through global cooperation and solidarity- the sharing of beneficial technologies, authentic information and trained medical personnel to save thousands of lives and trillions in terms of economic value?
One microbe was enough to expose the vulnerabilities of the world economy and also to help it build resilience against Black Swans which increasingly threaten to turn white.
Second Prize Name:Rhea Banerjee College: St. Xavier's College (Autonomous), Fort, Mumbai
From the empires of antiquity to the present-day globalised-economy, pandemics have struck-all, leaving behind profound-impacts on the society as well as the economy. Right from the Great-Bubonic plague to the SARS-epidemic, pathogens have brutally-depredated human-life, wealth and happiness. Today, as the world reels under the panic ushered-in by the Coronavirus-outbreak, declared a ‘global-pandemic’ by the-WHO, it becomes imperative to-gauge the extent of its impacts on the global-economy and deliberate upon the policy-initiatives that should be taken at the moment to cushion-the-economy from its-consequences.
The-OECD has-warned that-COVID-19, which has already-claimed more-than 35,000-lives, poses ‘the biggest danger to the global-economy since the 2008 financial-crisis’. This public-health-emergency has already had grave repercussions on-businesses and travel. China’s factory-shutdowns have led to the sharpest-plunge in Chinese-production in the past three-decades, thereby disrupting global supply-chains. China’s exports of finished and unfinished-goods have fallen by a staggering-17.5% in Jan-Feb-2020 thereby causing a massive-slump in production-activities world-over. As-per a-report of the UN-Conference-on-Trade-and-Development, the slowdown in-manufacturing in-China due to COVID-19 could cause a $50bn-disruption in international-trade. Given-that China is the world’s second-largest economy; a slowdown in the Chinese-economy doesn’t augur-well for the global-economy either.
As various countries place travel-restrictions, the global-aviation-industry and the-hospitality-sector would have to-deal with a massive fall in their revenues. The International-Air-Transport-Association has predicted a revenue-loss of $63bn-to-$113bn for the aviation-industry, in 2020-21.
Consumers are barely spending on-restaurants,-travel,-movies etcetera; which foretells a drastic-drop in consumption-expenditure, an important determiner of the-Gross-Domestic-Product. Goldman-Sachs is estimating the second-quarter GDP of the US, to fall by 24%-YOY. Fitch-Ratings has downgraded India’s growth-forecast to-5.1% and that remains a portentous-indicator for an economy that is still coping-up with the effects of demonetisation, GST-implementation and the banking-sector crisis, with unemployment being at a 45-year-high. Such ratings shall further forestall investors from investing in the Indian-economy.
The combined-impact of such-decline in trade, investment-expenditure and consumption-expenditure all over the world, along with an increased spending on public-health and declining-revenues from public-enterprises, would severely slow-down the global-economy and widen the fiscal-deficit, thereby aggravating the already existing economic-crisis.
The-IMF has declared that the world has entered a global-recession. Most-analysts are expecting the global-economy to contract by almost 5%, assuming economic-activities resume by May-2020. The last-time it contracted by a similar-magnitude was in 2008-09. The condition might probably-worsen if economic-activities do not see a revival by May-2020 and in that case, there are high chances of the global-economy approaching the 1929 Great Depression-like situation with unemployment levels skyrocketing and waves of bankruptcies and huge layoffs striking the world economy. Quoting the world-renowned economist Swaminathan-Aiyer, “If consumers cut consumption by no more than 5% to avoid infection, that will suffice for a world recession…. The-recession that follows can cause thousands of bankruptcies…”
For the first-time since the Great-Depression of-1929, the stock-markets plummeted by-32% in just 18-days. The virus-induced panic has shaken investor-confidence world-over. To compound its impacts, an oil-price-war between Russia and Saudi-Arabia, has resulted in oil-prices being at an 18-year low, an extremely dire situation for the oil market. While it will bleed fracking-firms of their-profits, several-economists hold-that the benefits of decreased oil-prices wouldn’t trickle-down to the consumers either, since demand remains substantially-low due to ‘complete-lockdowns’ in many countries. Whether it would benefit the major oil-importing-economies like-India, is yet to be seen.
The bottom-line is, even-though the virus may not have as devastating an impact in-terms of human-lives claimed as compared to its-predecessors like the Black-Death, the steps-to contain it will cause a massive economic-slowdown and the longer the ‘shutdown-period’ remains, worse would be the impact of this pandemonium on the global-economy.
At this moment, although various-economies have slashed interest-rates to near-zero, we require a combination-of growth-enhancement measures, tax-breaks, generous cash-handouts for the poor, special-purpose loans to companies facing a liquidity-crunch and an immediate-enhancement of medical-facilities to cater to the rising victims of the contagion.
Humanity has gone through tougher challenges before--wars,-famines, catastrophes etc. However, global-solidarity in the-face of adversities has helped it bounce-back with greater-vitality. What lies ahead is still uncertain, but collaborative-steps at the international-level are quintessential to allay the fears of mankind and inject it with the courage required to overcome these hard-times. As the saying goes, “Just because the economy is down doesn’t mean you put your-spirits down as well!”