EDEN BUILDING TO STOCK EXCHANGE

Published: 12 July 2020

Impact of COVID-19 on global economy

https://dailyasianage.com/news/235102/impact-of-covid-19-on-global-economy M S Siddiqui

COVID-19 pandemic is causing an unprecedented disruption to the global economy. It may continue to paralyse economic activity around the world for unknown period. It has disturbed the political, social, economic, religious and financial structures of the whole world. World’s topmost economies such as the US, China, UK, Germany, France, Italy, Japan and many others are at the verge of collapse. The impact of COVID-19 is severe on the economic structure of the world because people are not spending money resultantly businesses are not getting revenue. Therefore, most of the businesses are shutting up shops. Most of the economists have already predicted about the recession to happen because there is no surety and still no one knows that how for this pandemic fall and how long the impact would be is still difficult to predict. Most of the nations are going through recession and collapse of their economic structure that points out the staggering conditions for them in this regard almost 80 countries have already requested International Monetary Fund (IMF) for financial help. By this time, central banks around the world have moved aggressively to cut interest rates and roll out massive stimulus measures to help combat the impact of the outbreak that has rocked financial markets. Bangladesh also offered subsidized interest rate for stimulus package for ailing business sectors to rescue different business sectors and to come out of recession. The pandemic is continue to remain the planet and can cost the global economy between $5.8tn and $8.8tn, according to Asian Development Bank (ADB). There is a different view as well. ICC in its quarterly News Bulletin (Jan-Mar’20) published that "It is still too early to properly assess the extent of negative impact the virus will have on the world economy, since the situation is evolving every day, economic estimates can only provide a magnitude of the impact." IMF warned that it might push the global economy into the worst recession since the Great Depression of the 1930s, and far worse than the one triggered by the Global Financial Crisis in 2008-09. As per IMF projections, the global economy would contract by 3.0 per cent in 2020,

while the World Bank thinks the global economy will decline by 2.1-3.9 per cent. The poorest countries being the hardest hit. UNCTAD's free market commodity price index (FMCPI), which measures the price movements of primary commodities exported by developing economies, declined by a whopping 20 per cent in March. This is the highest fall in commodity prices in recent history with the comparable figure during the global financial crisis of 2008 when it was around 18 per cent. Most importantly, the prices of crude oil became negative in April, which however recovered in May. Coronavirus triggered a new type of recession that was different from other past recession. For example, the Asian debt crisis of 1997 caused by the collapse of the Thai baht in July 1997, which created panic that caused a region-wide financial crisis and economic recession in come countries of Asia. The 2008 global financial crisis causing a recession due to loose monetary policy, which created a bubble. It was followed by subprime mortgages, weak regulatory structures, and high leverage in the banking sector. The recession in Nigeria in 2016 caused by the fall in the price of crude oil, balance of payment deficit, adoption of a fixed-float exchange rate regime, an increase in the pump price of petrol, activities of pipeline vandals and infrastructure weaknesses. The recession in Greece caused by the after-effect of the global financial crisis, structural weaknesses in the Greek economy, and lack of monetary policy etc. The pandemic is likely to cause an increase in global poverty for the first time since the 1990s. According to a UNU-WIDER estimate, the number of people living in poverty could increase by 420–580 million. The World Bank estimates that the share of the population living in extreme poverty will rise by 40-60 million. The UN, however, predict the number in the range of 84–132 million. According to the Save the Children and UNICEF, the COVID-19 pandemic could push an additional 86 million children into household poverty by the end of 2020. For example, the Poverty rate in Bangladesh may rise to 40.9 per cent if Covid-19 causes 25 per cent fall in family incomes, according to the SANEM estimate based on the BBS's income and expenditure survey data. Consequently, the successes in alleviating poverty over the past two decades may fizzle out. As per the Global Report on Food Crises, there were 135 million people in acute food insecurity in low and middle-income countries last year. That figure could almost double to reach 265 million in 2020. The world could see the number of hungry people double in the aftermath of this crisis, as per the World Food Programme (WFP). Global trade contracted by 3.0 per cent in the first quarter of 2020. According to the UNCTAD, the downturn would accelerate in the second quarter as well and the world trade would decline by 27 per cent. It has echoed by the World Trade Organization (WTO), which has projected that the world merchandise trade would shrink between 13 and 32 per cent in 2020. There is another sector going to suffer is the job losses for migrant workers and the decline in remittance flow to third world countries. The WB projections found that global remittance flows would decline sharply by 20 per cent in 2020. Europe and Central Asia will experience the largest fall of 27.5 per cent, followed by Sub-Saharan Africa (23.1 per cent), South Asia (22.1 per cent), the Middle East and North Africa (19.6 per cent), Latin America and the Caribbean (19.3 per cent), and East Asia and the Pacific (13 per cent). About 94 per cent of the world’s employed workforce are living in countries with some sort of workplace closure measures in place while around one-fifth of them live in countries that have closed all workplaces apart from those deemed essential. The International Labour Organization (ILO) survey found that more than one in six young people have stopped working since the onset of the crisis.

Young people who remain employed experienced a 23 per cent cut in their working hours. The decline in working hours around the world in the first quarter of 2020 is equivalent to approximately 135 million full-time jobs losses, which would increase to 305 million in the second quarter. The crisis is hitting young workforce, especially young women, more severely than any other group. The huge impact of COVID-19 on the world's biggest economy as the number of Americans seeking unemployment benefits jumped by almost 3 million last week. Nearly a quarter of the US workforce is now claiming some form of benefits. UNCTAD predicted that the global FDI will shrink by 5-15 percent. Some study observed that FDI flow expected to drop by about 35 per cent due to travel bans, disruption of international trade, and wealth effects of declines in the stock prices of multinational companies. The global stock market took a major hit with the core indexes Dow Jones, Nikkei, FTSE facing the dismal declines in its history. The stock market severely damaged by COVID-19. For example, the stock market of the United States is down about thirty percent. Besides, the most affected sectors have become vulnerable such as tourism and travel-related industries, hotels, restaurants, sports events, consumer electronics, financial markets, transportation, and overload of health systems. The economies are integrate with each other and nations need cooperation and coordination among themselves to overcome the economic crisis. Moreover, the nations should co-operate, coordinate and help each other to fight against Coronavirus. Subject to immediate relief from pandemic, the economic recovery from this fatal disease is only possible by 2021. It has already left severe impacts on the global economy and the countries face multiple difficulties to bring it back in a stable condition. The writer is a legal economist. Email: mssiddiqui2035@gmail.com.