Once upon a time, a happy world who slept in a sky full of stars didn’t know that the next morning it would have to fight the war against the deadliest unprecedented crisis. Presently, almost every country across the globe is battling with Covid-19. The aftermath of the health pandemic has resulted in a situation where the international borders have been sealed, all modes of travel are banned, international global supplies are choked, and the kind humans are fumed into ashes. With no vaccines[i] and proper cure to control the contagious Covid-19, stringent lockdowns and compulsory social distancing are the only weapons in the hands of the government. Worldwide, 2.97 million cases have been reported of Coronavirus and more than 200 thousand humans have already been put into coffins. However, the figures are anticipated to increase manifold as the impact of Covid-19 is still a substantial uncertainty.[ii]
As per the report of IMF, it is expected that the cumulative growth shall fall to -3 percent with a total downgrade of 6.3 percentage points. Further, a cumulative GDP loss in 2020-21 is expected to be 9 trillion dollars. However, a sigh of relief has also been cited when the IMF mentions that the global economy may rebound at 5.8 percent in 2021. Nonetheless, such relief package comes with the assumption of taking a baseline scenario where it is assumed that the pandemic will fade away before the 2nd half of the financial year 2020 and there will be a gradual lifting of containment measures and restoration of consumer and investor confidence. Unfortunately, if the crisis becomes volatile and enters into the 2nd half of this year, another 3 percent GDP loss is anticipated. Moreover, if one assumes the worst-case scenario where the Covid-19 hits the year 2021, 8 percent GDP contraction below the baseline can be witnessed.[iii]
The impact of Covid-19 has its effect not only on the developing countries or less developed countries but even on advanced countries as well. Ironically, the advanced countries have to face a higher degree of growth contraction. As anticipated, advanced countries may observe negative growth of 6.1 percent while the emerging and developing economies shall be affected by -1 percent growth. The severity of the problem can be substantiated by the fact that countries are facing low fiscal space to support their dead economies. The stage of rapid economic revival after the global economic shock is a panglossian thought. However, a slow rate of recovery can be expected once the gravity of the crisis is lowered down.
The global impact of Covid-19 can be categorized into two parts, that is one where the effect would be severe and the recovery would take a long time whereas the other part where the effect is of the lower gravity and where the recovery can be quick and swift. The tourism industry which makes up to 10 percent share of the global GDP can be one of the examples of the former category where the impact of Covid-19 may be regarded as extremely severe. With the national borders fortified, tourism flows have come to a screeching halt. A warning has been issued by the WTTC that the Covid-19 pandemic can take away 50 million jobs worldwide in this sector including the 30 million job loss in Asia only. The revival of the industry shall take more than 10 months after the end of the outbreak.[iv] Even if the travel bans are relaxed, the fear that has attacked the mind, soul, and body of the humans would not let them pursue the crossing of international borders unless extremely urgent. [v]
Another sector that can be classified into the first category is the Oil sector. With a rapid decrease in transportation and less public usage of vehicles, the global demand for oil has been significantly dropped. Recently, the WTI oil prices have gone in negative which means that the sellers are paying the buyers to purchase their oil as the cost of shutting down the mines is costlier than selling oil at loss.[vi] Such a decline in demand is expected to be continued throughout the year 2020 as the situation remains fluid. Not only the oil market is affected but the whole energy sector also is crashed because of the barriers imparted at the international borders even for the supply of goods.[vii] This scenario shall result in the tumbling of prices and decline in production thus, halting the economy in the energy sector making swift recovery the extra mile.
Certainly, there are hopes for some of the sectors to outperform the others even after correspondingly hitting the wave of Coronavirus. Sectors that fall under the second category where the recovery can be smooth and quick can be agriculture, wholesale trade, healthcare sector, IT sector, and the transportation sector. These sectors although affected directly or indirectly still have the potential to quickly come into action once the outbreak is controlled. They will rapidly grow because the global demand will inflate in these areas. Also, these sectors despite the crisis have shown resilience to the falling market. Even the government has aided such regions so that the demand and supply of essential goods are not obstructed. Proper policy framework and debt reliefs can help these sectors to hold the lost ground expeditiously.
However, one distressing scenario that can be anticipated which may adversely impact the global market is where the nation-states adopt the idea of autarky i.e. self-sufficiency.[viii] The individual states are presently divided on the opinion of either choosing protectionism or internationalism as a path for the betterment of their economy. Such economic and political discourse has garnered much attention of policymakers from all over the world. Nonetheless, if one has to analyse the current trends, it is easy to assume that there is a steep and silent rise of nationalism transcending globalization. The scars of the crisis on the bodies of citizens and their government have made them realized the fact that in cases of emergency, only the nation-state acts as the guardian giving them financial and emotional strengths.
The protectionist philosophy has been given a boost in the current period as the citizens all over the world have realized the fact that in cases of emergency, only the nation-state acts as a guardian giving them financial and emotional strengths. Stoppage of cross-border medical supplies and other essential goods can ascertain the point of driving the world towards the era of uncontrolled nationalism.[ix] The anti-globalizers supported by the political winds have figured this health crisis as the correct time to disrupt international supply chains making their nations resilient and independent while pushing weaker nations into a state of extreme poverty. Though, the global solidarity is the need of the hour to battle this extraordinary crisis, yet, the sheer fall of globalization is unstoppable. Nevertheless, international cooperation can be a strong tool to reduce the corona-impact on the global economy and the strong market forces should work in consonance rather than creating another trouble for the world.
Undeniably, the economic impact all around the globe cannot be deferred. However, the severity of its effect can be modulated by working sincerely on two factors. The first factor determines the duration of restrictions on the movement of individuals and impediments on reopening of economic activities whereas the second factor elaborates the efficacy of fiscal responses to the crisis. This crisis is the rostrum for the policymakers to come out with the survival packages for the life and livelihood of the citizens.
The policymakers have to play a significant part in relaxing the restrictions in such a manner that at the one end, steepness of crisis is brought to baseline while on the other end; economic functions are alleviated with proper credit security by the government. Also, this catastrophe calls for amalgamating different bilateral creditors and international financial institutions to lend concessional monetary grants to ensure sound policy for debt relief rather than debt burdening. In closing, one can hope and pray for the outbreak to take a speedy U-turn so that the rebound of the global economy may proceed with a plan of its ‘V-shaped recovery’.
[ii]Covid-19: Confronting uncertainty through & beyond the crisis, Deloitte https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/covid-19–confronting-uncertainty-through—beyond-the-crisis-.html.
[iii] World Economic Outlook, April 2020 — Chapter 1: The Great Lockdown, International Monetary Fund (Apr, 2020) https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020.
[iv]Joan Faus, This is how coronavirus could affect the travel and tourism industry, World Economic Forum (Mar, 2020) https://www.weforum.org/agenda/2020/03/world-travel-coronavirus-covid19-jobs-pandemic-tourism-aviation.
[v] The future of Tourism post Covid-19, United Nations ESCAP (Apr, 2020) https://www.unescap.org/blog/future-tourism-post-covid-19.
[vi]Mose Buchele, Oil Prices have gone negative. How does that even happen?, Kut.org (Apr, 2020) https://www.kut.org/post/oil-prices-have-gone-negative-how-does-even-happen.
[vii] Global oil demand to decline in 2020 as coronavirus weighs heavily on markets, IEA (Mar,2020) https://www.iea.org/news/global-oil-demand-to-decline-in-2020-as-coronavirus-weighs-heavily-on-markets.
[viii] Pallavi Nahata, Amid Global Lockdowns, India Finds itself facing autarky-like conditions, Bloomberg (Apr, 2020) https://www.bloombergquint.com/business/amid-global-lockdowns-india-finds-itself-facing-autarky-like-conditions.
[ix] China blocks US medical equipment to fight Covid-19, Asia times (Apr, 2020) https://asiatimes.com/2020/04/china-blocks-us-medical-equipment-to-fight-covid-19/.