Economic crisis due to Microscopic virus (COVID-19)

Fri, 17 Apr 2020
by Chandana Chowdary Jampani

The COVID-19 pandemic is devastating to a greater extent by costing human lives worldwide. Protecting lives and allowing health care systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus.

We owe a huge debt of gratitude to the medical professionals and first responders who are working tirelessly to save lives.

The health crisis is therefore having a severe impact on economic activity.

Global Economy in Recession:

As a result of the pandemic, the global economy is projected to contract sharply by –3.0% in 2020, much worse than during the 2008–09 financial crisis.

which assumes that the pandemic fades in the second half of 2020 and the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes. If the pandemic does not recede in the second half of 2020, global GDP would fall an additional 3% in 2020.

IMF has approved debt relief for 25 countries.

India’s growth is expected to dip to 1.9% in 2020 and rebound to 7.4% in 2021.

India’s growth projection for 2020 is 3.9% less than what was projected for the country in the January update to the WEO while its rebound in 2021 is 0.9% higher than the January projection.

Impact on Global GDP:

The cumulative loss to global Gross Domestic Product (GDP) over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany,combined.

It is very likely that this year the global economy will experience its worst recession since the “Great Depression” surpassing that seen during the global financial crisis a decade ago.

The total estimated loss to global economic growth has declined to $9 trillion i.e,more than three times India’s GDP.

This crisis will need to be dealt with in two phases:

  1. Phase of containment and stabilization.
  2. The recovery phase.

From the aforementioned two phases both public health and economic policies have crucial roles to play. Quarantines, lockdowns, and social distancing are all critical for slowing transmission, giving the health care system time to handle the surge in demand for its services and buying time for researchers to try to develop therapies and a vaccine. These measures can help avoid an even more severe and protracted slump in activity and set the stage for economic recovery.

Measures to combat the impact:

Policymakers have to make targeted fiscal, monetary and financial sector interventions to support impacted households and businesses.

Fiscal measures should be two-fold:
  1. Cushioning the impact on the most-exposed households and businesses
  2. Reducing firm closures , i.e., preserving economic relationships.

Monetary stimulus by large central banks and liquidity facilities to reduce systemic stress will help limit the shock, positioning the economy for a better recovery.

Strong multilateral cooperation:

This means reducing tariff and non-tariff barriers that restrict cross-border trade and global supply chains as well as scaling back capital flow measures as global financial sentiment recovers. Financially, weaker countries will need continued multilateral assistance, including access to concessionary financing, grants, and debt relief.

Research and development should start with multilateral assistance to develop a vaccine and therapies to combat the disease.

Bitter truth:

Lockdowns will not be sufficient to bring pandemic under control, Purpose of lockdown is only to flatten the curve, we should scale up the testing process.

Post lockdown:

one can learn lessons from South Korea and Taiwan by practicing measures such as wearing masks everywhere, maintaining social distances and also taking care of personal and social hygiene.

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