The corona virus pandemic is world-shattering events, consequences of which are far reaching, begin to imagine from right now. The pandemic has shattered lives, disrupted markets and exposed the competence of world-wide countries in terms of their political and economic power. It will determine their capacity to live with after-shocks and maintain sustainability in the new challenging world.
As per IMF prediction the world will ‘very likely’ experience worst recession in resultant Corona pandemic. The Washington-based organization expects the global economy to contract by 3% in 2020. The Fund expects a “partial recovery” in 2021, but this is conditional on an improvement in the health crisis. By contrast, in January it had forecast a global GDP (gross domestic product) expansion of 3.3% for this year.
Gita Gopinath, the IMF’s chief economist, said in the latest World Economic Outlook report. Earlier, in January, the IMF had estimated 3.4% GDP growth in 2021; recently this was revisited. However, speaking to CNBC Gopinath, Chief Economist IMF said: “This is a crisis where the economic shock is something that is not exactly controlled by economic policy,” as it’s unclear when the pandemic will end.
Great Economic Depression vs. Great Lockdown
The IMF’s chief economist also said that in comparison to the Great Depression, “we are (now) better off on the health front. On the economic front, I think it makes a big difference that there are lenders of last resort, that monetary policy is proactively able to come in and ensure enough liquidity in markets, that fiscal policy is able to play a major role in supporting firms and households.”
The IMF expects a “partial recovery” in 2021, provided that the pandemic eases throughout this year. The dramatic downgrade in this year’s growth expectations comes as other institutions also warn that the coronavirus outbreak is bringing massive economic challenges. The World Trade Organization said last week that global trade will contract by between 13% and 32% this year. The Organization for Economic Coordination and Development has also warned the economic hit from the virus will be felt “for a long time to come.”
To contain the spread of the virus, many governments have implemented lockdown measures, only allowing people to leave their houses to purchase groceries, medicines and, in some cases, to exercise. As a result, business activity has stalled in many countries.
The IMF, which dubbed the current crisis “the Great Lockdown,” said “this is a crisis like no other.” Speaking at a press conference, Tuesday, Gopinath explained “the magnitude and speed of collapse in activity that has followed (the lockdown) is unlike anything we’ve experienced in our lifetimes.”
Poor may get poorer due to COVID-19 Economic Crisis
There’s severe uncertainty about the duration and intensity of the economic shock, and stimulating economic activity is more challenging given the required social distancing and isolation policies. The IMF said it had received “an unprecedented number of calls for emergency funding.” Out of its 189 members, more than 90 of them have asked for financial support. The fund, which provides financing to members which are struggling economically, has $1 trillion in lending capacity.
When speaking to CNBC, Gopinath said: “When you have a deep recession of this kind, there is always unfortunately tremendous loss of income for people at the lower end of the income scale, so poverty can go up, inequality can go up.”
Covid-19 Economic Crisis to have Highest Impact on EU Zone
The latest forecasts from the IMF suggest that the U.S. economy will contract by 5.9% this year. In comparison, the euro zone is expected to shrink by 7.5%, but China is seen growing by 1.2% in 2020. The economic situation will be particularly difficult in Italy and Spain, where GDP is set to contract by 9.1% and 8%, respectively. These two countries are the worst hit in Europe by Covid-19. Both have higher numbers of infections and deaths than China, where the virus first emerged in late 2019.
What shall be done by Governments to deal with Covid-19 Economic Crisis?
The IMF is advising countries to focus on the health crisis first, by spending on testing, medical equipment and other health care related costs. It also said that governments should provide tax deferrals, wage subsidies and cash transfers to the most-affected citizens and firms; as well as to prepare for the lifting of lockdown measures.
From Great Recession experienced in the past, it is extracted that countries can’t fight alone against pandemic Corona19. USA should realign its efforts to deal with global crisis, not retreat from it.
The policymakers sitting in Washington and other global capitals require preparing fiscal plans consciously and the stakeholders need to understand criticality of the situation and learn lesson from the last financial downturn during 2008. An early recovery from the crisis will only be possible if concerted efforts are made over the globe. The stakeholders need to expand the money supply.
Furthermore, World Economic Forum needs to play its pivot role to cope with emerging crisis.
There is a silver lining in the prevailing economic crisis; it is that the relatively compressed timeline between 2008 and today means there is great relevance in one of the most consequential approaches policymakers employed then. Particularly, the lesson learnt from the past would enable to find solution of global economy revival.
Today, the economic outlook for the world seems bleak as coronavirus crisis already causing one of the most severe shocks to global economic of the century. Projections about second quarter of 2020 is portrayed as the worst quarter in the century. International Monetary Fund compared past shocks together with Corona crises. Contrary to past, this time we are fighting a real contagion as we are facing much more polarized world with a weaker economic “immune system.” An unsettled global environment is real threat as major economic powers have been using trade as a weapon instead a joint effort toward overall world economic prosperity.
Given the scale of financial market losses the world has experienced since February 2020, companies are likely to come out of the model “just-in-time, globally dispersed production.” The result could be a dramatic new stage in global capitalism, in which supply chains are brought closer to home and filled with redundancies to protect against future disruption. That may cut into companies’ near-term profits but render the entire system more resilient.
How to boost global resilience after CORONA Crisis?
COVID-19 pandemic suggests we must reduce our blind spots towards risk. Market unions require to be strengthened. Each and every country should take measures to cope challenges, such as climate change. At the same time, concrete measures may be initiated to bring down overall global debt at rational level (reached a high of $184 trillion — more than 11 percentage points of GDP higher than in 2009).
It is imperative for leaders to think they should respond to the crisis jointly rather opting individual strategy of the past era. While the coronavirus necessitates the distancing of those who are sick and the closure of borders in some instances, these measures cannot be prescriptions for our long-term economic well-being. Trade represents close to 60% of global gross domestic product, and national economies cannot thrive in isolation.
As the virus abates, countries will need to strengthen global commerce together and ensure those countries challenged by less resources in reserve have the means to recover. Leaders are hopefully looking back and approaching the recovery in a posture of coordination.
