COVID-19 : THE ECONOMY DESTROYER?

The world woke up to a perilous reality on the 11th of March 2020, when the World Health Organisation (WHO) declared novel coronavirus a pandemic. Originating from China it is widely spread to the entire world. Globally, the COVID-19 has not only affected public health socially but also has rigorously affected the entire world economically. Few examples of such downfall in the global economy are substantial declines in income, increase in unemployment, and distractions in the transportation, amenities, and industrial sectors. Well these are just a few, the list is quite long. Coronavirus just cancelled all the five year development plans of various nations and locked all of us in our homes for months and months. It has become clear that most governments in the world underestimated the risks of rapid COVID-19 spread and were mostly reactive in their crisis response. As disease outbreaks are not likely to disappear in the near future, proactive international actions are required to not only save lives but also protect economic prosperity.

In the US, Covid-19-related disruptions have led to millions filing for unemployment benefits. In April alone, the figures were at 20.5 million, and are expected to rise as the impact of the pandemic on the US labour market worsens. As per a Reuters report, since March 21, more than 36 million have filed for unemployment benefits, which is almost a quarter of the working-age population. Further, an early analysis by the IMF reveals that the manufacturing output in many countries has gone down, which reflects a fall in external demand and growing expectations of a fall in domestic demand. Due to the fall in travel, global industrial activity has been affected. Oil prices fell further in March as the transportation sector, which accounts for 60 per cent of the oil demand, was hit due to several countries imposing lockdowns.

Trade experienced a short-lived but deep dive. The death toll has been on average larger for high-income countries. This can be attributed to several reasons, including demographics, the degree of international integration. The increase of the fiscal deficit in advance economies doubles that of emerging and middle-income countries and was five times larger than that of lower-income economies. The sizable discretionary fiscal support, along with the contraction in output and fiscal revenues, led to an increase in government debts. One cannot really say that the world is not recovering from the devastating pandemic. Several relevant steps have been taken in the direction of the recovery.

As the spread of the virus is likely to continue disrupting economic activity and negatively impact manufacturing and service industries, especially in developed countries, we expect that financial markets will continue to be volatile. There is still a question as to whether this unfolding crisis will have a lasting structural impact on the global economy or largely short-term financial and economic consequences. In either case, it is evident that communicable diseases such as COVID-19 have the potential to inflict severe economic and financial costs on regional and global economies. Because of high transportation connectivity, globalization, and economic interconnectedness, it has been extremely difficult and costly to contain the virus and mitigate the importation risks once the disease started to spread in multiple locations.

The global economy is recovering slowly from the lockdowns. The recent World Economic Outlook (WEO) update, published in April 2021, estimates a partial recovery in 2021. Economies are expected to operate with excess capacity in the medium term. Both advanced and developing economies are expected to operate in the year 2021 pointing to modest growth in 2020–2025. As outbreaks of novel infections are not likely to disappear in the near future, proactive international actions are required not only to save lives but also to protect economic prosperity.