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COVID-19 impacts surge out the global economy

Published : Monday, 23 March, 2020 at 12:00 AM  Count : 684
Md Zillur Rahaman
Md Zillur Rahaman

Md Zillur Rahaman

The coronavirus outbreak, which originated in China, has infected more and more people severely across the world and considering its depth of gravity, the World Health Organisation (WHO) declared it as pandemic. Its spread has left businesses around the world counting costs.

A global, novel virus popularly known as COVID-19 that keeps us contained in our homes--maybe for months--is already reorienting our relationship to government, to the outside world, even to each other. Some changes these experts expect to see in the coming months or years might feel unfamiliar or unsettling: Will nations stay closed? What will become in the coming days?

But crisis moments also present opportunity: more sophisticated and flexible use of technology, less polarization, a revived appreciation for the outdoors and life's other simple pleasures. No one knows exactly what will come, but here is our best stab at a guide to the unknown ways that society--government, healthcare, the economy, our lifestyles and more--will change.

There is still so much we don't know about the coronavirus, which makes the potential economic fallout extremely uncertain, for both China and the rest of the world. It is also difficult to completely isolate one factor--in this case, a virus outbreak--from everything else happening in the world that can rattle the markets or strain economies.

So how deep, lasting, or widespread any economic fallout will be is hard to predict. But it is clear from how wildly markets are reacting, and from the responses of governments - the Federal Reserve System has already cut interest rates--that the world is bracing for a potential coronavirus-linked downturn.

The ongoing spread of the new coronavirus has become one of the biggest threats to the global economy and financial markets.But over the last century, recessions have almost always been started by a sustained period of higher interest rates. Never a virus, the damage such contagions inflicted on the world economy typically lasted no more than three months. Now this once-in-a-century pandemic is hitting a world economy saddled with record levels of debt.
The coronavirus outbreak could cost the global economy up to USD 2 trillion this year, the United Nations Conference on Trade and Development (UNCTAD) said, warning that shock from the epidemic will cause a recession in some countries and depress global annual growth to below 2.5 per cent.

In a March report, the Organisation for Economic Co-operation and Development (OECD) said it downgraded its 2020 growth forecasts for almost all economies. The report also mentioned that China's gross domestic product growth saw the largest downgrade in terms of magnitude and the Asian economic giant is expected to grow by 4.9% this year, slower than the earlier forecast of 5.7%. Meanwhile, the global economy is expected to grow by 2.4% in 2020--down from the 2.9% projected earlier by the OECD.
The manufacturing sector in China has been hit hard by the virus outbreak. The virus outbreak in China has also hit the country's services industry as reduced consumer spending hurt retail stores, restaurants and aviation among others.

The travel industry has been badly damaged, with airlines cutting flights and tourists cancelling business trips and holidays. Governments around the world have introduced travel restrictions try to contain the virus, which ultimately hurts the global economy.
The impact of the pneumonia-like disease caused by the COVID-19 virus is already being felt across Asia, where leisure and business travel contributed $884 billion to gross domestic product in 2017 and about $1 trillion estimated for 2018, the most recent years for data compiled by the World Travel and Tourism Council. For China alone, inbound tourism brought in $127.3 billion in 2019, its tourism bureau disclosed.

The coronavirus outbreak could cost the global tourism industry about $80 billion in lost revenue, with players warning that the sector is unlikely to recover for at least one year. Millions of Chinese tourists cancelling travel plans, or delaying future holidays over safety fears because of the disease, now called Covid-19, online travel companies like Expedia and Tripadvisor are already forecasting a drop in revenues, which could ripple into everything from hotels to retail outlets abroad.

China is not the only country where the services sector has weakened. The services sector in the US, the world's largest consumer market, also contracted in February. One reason behind the US services contraction was a reduction in "new business from abroad as customers held back from placing orders amid global economic uncertainty and the coronavirus outbreak. A reduction in global economic activity has lowered the demand for oil, taking oil prices to multi-year lows.

China, the epicenter of the coronavirus outbreak, is the world's largest crude oil importer. The spread of the virus in Italy and other parts of Europe is particularly worrying and will likely dampen demand in OECD countries as well.

Many ships heading to Long Beach leave from China's Shenzhen port, the fourth-largest in the world by container volume. Dock workers there disclosed that business had fallen off by an estimated 50 to 75 percent since the coronavirus outbreak began. China's exports contracted by 17 per cent in dollar terms in January and February, with the declines caused by "fewer working days, production suspension and strict traffic restrictions imposed after Covid-19 outbreak.

Fear surrounding the impact of COVID-19 on the global economy has hurt investor sentiment and brought down stock prices in major markets. Investors fear the spread of the coronavirus will destroy economic growth and that government action may not be enough to stop the decline. In response, central banks in many countries have cut interest rates.

This virus is as economically contagious as it is medically contagious. It amounts to a triple whammy for the manufacturing sector in most major economies: outright closures in many Asian plants, supply chain disruptions all over, and topped off with a plunge in demand for cars, electronics, and many other manufactured goods as people take a wait-and-see attitude to the crisis

The fear now gripping financial markets reflects recognition of this growing economic impact. The coronavirus, which had already disrupted factories and trade in China and across East Asia, is now wreaking havoc in Europe. Japan's economy shrank last quarter even more than initially thought, and Tokyo is toying with another huge fiscal stimulus to goose the economy back to life. Germany is also mulling a multibillion-euro economic injection to offset the worst of the crisis, while France is staring at now-stagnant growth. Italy has essentially shut down the industrial northern part of the country as cases and fatalities continue to mount, all but guaranteeing another recession.

On the economic front, a severe recession can no longer be avoided, and some economists are already calling for governments to introduce measures to shore up aggregate demand. But that recommendation is inadequate, given that the global economy is suffering from an unprecedented supply shock. People are not at work because they are sick or quarantined. In such a situation, demand stimulus will merely boost inflation, potentially leading to stagflation as happened during the 1970s oil crisis, when another important production input was in short supply.

The writer is banker









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