Coronavirus and the great lockdown: Bracing for tougher times

IMF has minced no words in saying that this pandemic will not only flatten global economic growth for 2020 but also push it into the negative growth rates

As on May 29, over 4.45 lakh tests have been done in Tamil Nadu and this is significantly higher than many other states. Representational image: iStock

The pandemic that has overtaken the world has very few parallels in world history. Some 200 nations and territories have been affected leaving behind a staggering death toll that is only increasing by the hundreds every day. The developed worlds of Europe and America are worse off than the developing countries, and there is not one sector of living that has been untouched by the ongoing tragedy.

At the time of writing more than two million people have been infected and close to 30,000 lives have been lost just in the United States which has overtaken Italy, Spain and France in a matter of days with the vibrant city of New York fast emerging and remaining as the epi-centre of the pandemic. If it took four months for coronavirus to reach one million, it was just twelve days thereafter to double it is being pointed out. And cutting across developed and developing, nations virtually went into a shutdown to isolate themselves from within and without from a virus that still defies definitive answers to its origin.

It has already been billed as The Great Lockdown or the worst ever recession seen since the times of the Great depression or for that matter even the more “recent” Global Financial Crisis of 2009. In its April 2020 World Economic Outlook (WEO), the International Monetary Fund has minced no words in saying that this coronavirus pandemic will not only flatten global economic growth for 2020 but also push it into the negative growth rates making economic recovery all the more difficult and challenging in 2021. “The cumulative loss to GDP over 2020 and 2021 from the pandemic crisis could be around 9 Trillion dollars, greater than the economies of Japan and Germany combined”, says Gita Gopinath, the IMF’s Economic Counsellor and Head of the Research Department.

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“For the first time since the Great Depression, both advanced economies and emerging market and developing economies are in a recession. For this year, growth in advanced economies is projected at -6.1 per cent. Emerging market and developing economies with normal growth levels well above advanced economies are also projected to have negative growth rates of -1.0 per cent in 2020, and -2.2 per cent if you exclude China. The income per capita is projected to shrink for over 170 countries. Both advanced and emerging market and developing economies are expected to partially recover in 2021”, Gopinath has said. The bottom line sobering assessment is that virtually no sector is going to be left untouched.

The impact of the COVID-19 for the region is going to be even more profound for the Asia Pacific which is going to witness the lowest growth since the 1960s. “This is a crisis like no other. It is worse than the Global Financial Crisis, and Asia is not immune. While there is huge uncertainty about 2020 growth prospects, and even more so about the 2021 outlook, the impact of the coronavirus on the region will—across the board—be severe and unprecedented” says Chang Yong Rhee, IMF’s Director for the Asia Pacific Department adding “ Growth in Asia is expected to stall to zero per cent in 2020. This is the worst growth performance in almost 60 years, including during the Global Financial Crisis (4.7 per cent) and the Asian Financial Crisis (1.3 per cent). That said, Asia still looks to fare better than other regions in terms of activity”.

The senior IMF official has stressed that downward revisions are going to be substantial ranging from 3.5 percentage points for South Korea to over 9 percentage points for countries like Australia, New Zealand and Thailand all of whom were going to be impacted due to fall in tourism revenues. And within the region “ Pacific Island countries are among the most vulnerable given the limited fiscal space, as well as comparatively underdeveloped health infrastructure”, Rhee has noted.

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At the same time what is also being forcefully put across is that a region like Asia Pacific will be impacted sharply by the rapid downtrend in the global economy given that the economies of major trading partners of America and Europe are expected to contract by 6 per cent and 6.6 per cent respectively. And if China’s growth during the Global Financial Crisis of 2009 remained largely unchanged because of fiscal stimulus programs in place, it is not about to take place this time around—the IMF has said that China’s growth is expected to contract to 1.2 per cent in 2020 from 6.1 per cent in 2019.

“Prospects for 2021, while highly uncertain, are for strong growth. If containment measures work, and with substantial policy stimulus to reduce “scarring,” growth in Asia is expected to rebound strongly—more so than during the Global Financial Crisis. But there is no room for complacency. The region is experiencing different stages of the pandemic. China’s economy is beginning to get back to work, other economies are imposing tighter lockdowns, and some are experiencing a second wave of virus infections. Much depends on the spread of the virus and on how policies respond”, Rhee has said.

For the present international economic institutions must be worried and keeping fingers crossed on a continent like Africa where the coronavirus is only now seen as making its presence known in the face of visible retreat in parts of Europe and the Americas. The frightening scenario for Africa is not merely on the health front but a cascading effect that could have given hunger and malnutrition prevalent in that continent together with the frightening prospect of conflicts.

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There is no doubt in the fact that India is going to be hammered as a result of the Great Lockdown as is evident from what the IMF has had to say—the growth projection to India in Fiscal 2021 has been slashed to 1.9 per cent from the 5.8 per cent projected in January 2020. What has also been pointed out is that the severe disruption to the economy is coming at a time when the country’s economy was already slowing especially due to weaknesses in the financial sector. And Barclays had a more bitter pill for India—the growth forecast is now put at 0 per cent for the calendar year 2020 against an earlier projection of 2.5 per cent. Other agencies have pegged India’s growth rate to be anywhere between minus one per cent and one per cent in fiscal 2021. Assuming that India is under lockdown till the end of May the loss is put around US$ 235 billion or some 8 per cent of the GDP.

For the first phase of the lockdown, the Government of India seems to have put a rightful emphasis on life over livelihood. Caught between a rock and a hard place, the Modi Government placed a premium on securing the health of those infected as well as in taking some unpleasant decisions in restricting the movement of people, especially the hundreds of thousands of migrant workers who wish to go home but stranded hundreds and thousands of miles away because of rail and road transportation. States in India have complained to the Center that their revenue collection is down to between 50 and 75 per cent, and a Center that is keeping its eyes peeled to see from where resources can be culled for distribution. India undoubtedly like the rest of the world is in for the long haul with all attention on New Delhi for its Fiscal Stimulus package to alleviate suffering from the short as well as the longer-term points of view.

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The world is reeling under a pandemic that is showing small signs of easing with not a single sector spared of the human and economic costs. Scientists are racing against time to find a vaccine or an antidote that is literally felling people by the hundreds every day even in developed societies. And this is not the time to be tripping over one another in assigning blame as to where this mess all started.

(The writer was a former senior journalist in Washington D.C. covering North America and the United Nations.)

(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not reflect the views of The Federal.)

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