The Great Lockdown: Worst Economic Downturn
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| Faces Under Masks |
The change
took place dramatically in the three months since our last update of the
Economic Outlook in January. A rare disaster, a corona virus
pandemic, has resulted in a tragic early large number of human lives being
lost. As countries implement necessary quarantines and social distancing
practices to contain the pandemic, the world has been put in a Great
Lockdown. The magnitude speed of collapse in activity that has
followed is unlike anything experience in our lifetimes
CORONAVIRUS (COVID -19) and GLOBAL GROWTH
The IMF`s estimate of the global economy growing at - 3% in 2020 is
an outcome "far worse" than the 2009 global financial crisis.
Economies such as the US, Japan, the UK, Germany, France, Italy and
Spain are expected to contract this year by 5.9, 5.2 6.5,7, 7.2, 9.1 and 8%
respectively.
Advanced economics have been hit harder they are expected to
grow by 6% in 2020. Emerging markets and developing economy are
expected to contract by 1%. If China is excluded from this pool of countries,
the growth rate for 2020 is expected to be -2.2 %.
China's GDP dropped by 3.6 % in first quarter of
2020, South Korea’s output fail by 5.5%, the country didn't impose a lock
down but followed a strategy of aggressive testing, and contact tracing and quarantining.
In Europe the GDP of France Spain and Italy fell by 21.3 19.2 and 17.5%
respectively.
India's
growth the fourth quarter of the fiscal year 2020 went down to -3.1 percent
according to the ministry of statistics. Unemployment rose
from 6.7% on 15th March to 26% on 19th April. During the lock down, an
estimated 14 crore people lost their employment while salaries cards for many
others. The Indian economy was expected to lose over rupees 32000 crore
everyday during the first 21 days of complete lockdown.
Supplies shortages are expected to affect the number of sectors due to
panic buying, increased uses of goods to fight the pandemic, and disruption of
factories and logistics in Mainland China. Sensex started gouging. There have
been widespread reports of shortages of pharmaceuticals, with many areas seeing
panic buying and consequence shortages of food and other essential grocery
items. The technology industry has also been warned about dealers for
shipments of electronic goods.
Global stock markets fail on 24 February, 2020 due to a significant rise
in the number of covid-19 cases outside Mainland China. By 28 February 2020,
markets worldwide saw their largest single week decline since the 2009
financial crisis. Global stock markets crashed in March 2020, with a fall
of 7% in the world's major indices.
Possible instability generated by an outbreak
and associated behavioral changes could result in temporary food shortages; price
hikes and disruption to markets. Such price hike has been felt most by
vulnerable populations who depend on markets for their food as well as those
already depending on humanitarian assistance to maintain their livelihood and
food access.
As the pandemic spreads, Global conferences
and events across technology, fashion and sports are being cancelled or
postponed. While the monetary impact on the travel and trade industry
is yet to be estimated, it is likely to be in the billions and expected
to increase more.
ALTERNATIVE ADVERSE SCENARIOS
What I have described is a baseline scenario but given the extreme uncertainty around the world regarding the duration and intensity of the health crisis there also be a search to explore alternative and more advanced scenarios. The pandemic has reached the second half of this year, leading to longer durations of containment, worsening financial conditions and further breakdowns of global supply chains. In such cases, global GDP would fall even further an additional 3% in 2020. If the pandemic continues up to 2021, there might be an economic short fall of additional 8% compared to our baseline scenario.
A LESSON FROM THE GREAT RECESSION
Between 1932 and 2008, the S&P 500 had grown approximately tenfold,
the world's labor market had moved from one largely rooted in agriculture to
one firmly based in industrial and digital sectors, and the global trading
system had become the foundation of national economies. Compared with the 1930s,
stakeholders in 2008 were operating in an interconnected world with a global
financial system and were therefore largely in an unchartered waters.
If there is a silver lining in the economic
portion of the crisis we are seeing unfolds today, 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. In
particular, the lesson of 2008 is that a globalized economy necessitates a
global solution. Today, the economic outlook for the world seems bleak,
with the novel coronavirus crisis already causing one of the most severe shocks
to global growth in a century.
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