Global Economic Outlook During COVID-19

The COVID-19 has spread with alarming speed,infecting millions and bringing economic activity to a near-standstill as countries imposed tight restrictions on movement to halt the spread of the virus.Several countries across the world resorted to lockdowns to “flatten the curve” of the infection. These lockdowns meant confining millions of citizens to their homes, shutting down businesses and ceasing almost all economic activity. According to the International Monetary Fund (IMF), the global economy is expected to shrink by over 3 per cent in 2020 – the steepest slowdown since the Great Depression of the 1930s.

The pandemic has pushed the global economy into a recession, which means the economy starts shrinking and growth stops.Tthe economic damage is already evident and represents the largest economic shock the world has experienced in decades.For emerging market and developing countries, many of which face daunting vulnerabilities, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.

"The crisis highlights the need for urgent action to cushion the pandemic’s health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery."

Coronavirus (COVID-19) and global growth

The IMF’s estimate of the global economy growing at -3 per cent in 2020 is an outcome “far worse” than the 2009 global financial crises. Economies such as the US, Japan, the UK, Germany, France, Italy and Spain are expected to contract this year by 5.9, 5.2, 6.5, 7, 7.2, 9.1 and 8 per cent respectively.

Advanced economies have been hit harder, and together they are expected to grow by -6 per cent in 2020. Emerging markets and developing economies are expected to contract by -1 per cent. If China is excluded from this pool of countries, the growth rate for 2020 is expected to be -2.2 per cent.China’s GDP dropped by 36.6 per cent in the first quarter of 2020, while South Korea’s output fell by 5.5 per cent, since the country didn’t impose a lockdown but followed a strategy of aggressive testing, contact tracing and quarantining.

In Europe, the GDPs of France, Spain and Italy fell by 21.3, 19.2 and 17.5 per cent respectively.

According to an assessment by the World Economic Forum (WEF), supporting SMEs and larger businesses is crucial for maintaining employment and financial stability.In Asia, countries including India, China, Indonesia, Japan, Singapore and South Korea account for about 85 per cent of all the Covid-19 cases on the continent.

In India, Finance Minister Nirmala Sitharaman has announced certain details of the Atmanirbhar Bharat Abhiyan package, to provide relief to Medium, Small and Micro Enterprises (MSMEs) in the form of an increase in credit guarantees.

For instance, in its World Economic Outlook report for 2020, the IMF mentions that firms may start hiring more people and expanding their payroll only slowly, as they may not be clear about the demand for their output.Therefore, along with clear and effective communication, broad monetary and fiscal stimuli will be required to be coordinated on an international scale for maximum impact, and, “would be most effective to boost spending in the recovery phase.”

Global coordination and cooperation—of the measures needed to slow the spread of the pandemic, and of the economic actions needed to alleviate the economic damage, including international support—provide the greatest chance of achieving public health goals and enabling a robust global recovery.