Sun 12 April 2020:
(AP) As the coronavirus pandemic has caused the global economy to face a far deeper and more savage shock than it has ever experienced, a return to the normalcy is going to be tougher, according to experts.
The world economy has never had such a crash landing as it is witnessing now as coronavirus has brought an entire model of global economic development skidding to a halt, says Adam Tooze, a history professor and director of the European Institute at Columbia University.
“As a result of the coronavirus pandemic, America’s economy is now widely expected to shrink by a quarter. That is as much as during the Great Depression. But whereas the contraction after 1929 stretched over a four-year period, the coronavirus implosion will happen over the next three months,” he wrote recently in Foreign Policy.
Tooze warns that the financial hangover of coronavirus will be there for years to come, even after the production and employment restart, as the latest data prove the world economy is in its steepest freefall ever making the old playbooks irrelevant.
Catastrophic impact
This catastrophe is going to sweep the entire world, affecting almost all countries and the lives and livelihoods of billions of people and their families. The pandemic has already taken a heavy toll on more volatile economic sectors such as real estate, construction, heavy engineering and vehicle industry and the shock in these sectors will cascade through the rest of the economy.
In the US, the more immediate and catastrophic impact of coronavirus was felt in sectors such as retail, real estate, education, entertainment, restaurants—where currently 80 percent of Americans work today.
The US unemployment rate is now 13 percent, the worst since the Great Depression and is rising at nearly 0.5 percent per day. As the economist Justin Wolfers pointed out in the New York Times, it is no longer unimaginable that the overall unemployment rate could reach 30 percent by the summer. Over 17 million people have filed for unemployment benefits in the past four weeks in the country.
The catastrophe is not confined to the US alone. Although regular economic activity is inching back in China, resumption of normal life is still uncertain given the risk of second- and third-wave outbreaks.
Germany’s GDP is predicted to fall by more than that of the United States. The north of Italy where the pandemic hit hard accounts for 50 percent of Italian GDP.
The latest set of forecasts from the Organization for Economic Cooperation and Development (OECD) are apocalyptic. OECD Secretary-General Angel Gurría said that the lockdown would directly affect sectors amounting to up to one-third of GDP in the major economies. For each month of containment, there will be a loss of 2 percentage points in annual GDP growth. The tourism sector alone faces an output decrease as high as 70 percent, he said.
The emerging market economies will contract substantially. Defying calculation is the damage to the Indian economy from a 21-day shutdown, which is expected to be extended further as more cases are being reported from across the country.
Protracted and halting recovery
However, the efforts that are being made to cushion the effects are themselves historically unprecedented, as the world is witnessing the largest combined fiscal effort launched since World War II.
Although this huge counterbalancing action has so far prevented an immediate global financial meltdown, falling consumption and investment will drive further contraction, leading to sustained damage to the financial system, says Tooze.
“The longer we sustain the lockdown, the deeper the scarring to the economy and the slower the recovery. A protracted and halting recovery seems far more likely at this point than a vigorous V-shaped bounce back,” he concludes.
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