As we grapple with the outbreak of novel coronavirus (or COVID-19), the pandemic is causing large-scale loss of life and economic mayhem. With over 650,000 confirmed infections and 30,000 deaths worldwide till date, it is now believed to be a global catastrophe to what was initially viewed as a largely China-centric theme. The Americas, Australia, Europe, Africa, Asia are all wrestling with its enormity and aftermath.
The deadly virus brings with it the third and greatest economic shock of 21st century after 9/11 and financial crisis of 2008. First signs of epidemic’s effects on China’s economy are far worse than the initial predictions. The official data reveals a widespread slowdown in its economic activity and signifies the virus caused a 20% GDP decline in the first two months of 2020. By March, Chinese services and manufacturing sector slumped to record lows, its automobile sales sank a record 80%, and exports shrank by some 17% in January and February combined.
Likewise, earlier in March, the US stock market took only 15 days to plunge into bear territory, which is a 20% drop from its peak. Even mainstream financial firms such as Morgan Stanley, Goldman Sachs, and JP Morgan, are expecting a contraction in the US GDP by an annual rate of 6% in the first, and between 24% and 30% in the second quarter. The US Treasury Secretary has alerted that the redundancy rates could rise steeply way over 20%, which is twice the peak levels of 2008 financial crisis.
Despite unparalleled emergency interventions by both European Central Bank and US Federal Reserve, the international financial markets have continued to fluctuate wildly. The S&P 500 Index had its worst week since 2008, falling 15% in the week ending 20th March 2020. Japan and Europe particularly, given their high dependence on trade and feeble fourth quarter performance, are likely already in recession. The OECD has projected that corona pandemic could depress the global GDP growth from 2.9% to 2.4% for 2020.
As governments impose strict lockdowns and consumers stay at home, tourism and travel-related industries are among the worst hit at sector level. The International Air Transport Association warns that virus outbreak can cost worldwide air carriers between $63 billion and $113 billion in proceeds in 2020. With major disruptions confronting sporting events, restaurants, and other services, shares of main hotel companies have also nosedived in the last few weeks. Similarly, global film industry is expected to lose over $5 billion in lower box office revenues.
Unless governments around the world stop Covid-19’s progression and relax social-distancing controls too soon, the human toll and economic impacts will remain earth-shattering. The coronavirus is seriously threatening the stability of entire global financial system. So far, national governments have declared essentially uncoordinated and country-specific responses to the contagion in order to cushion their economies. Now is the time for policy-makers to employ coherent, coordinated, and credible strategy actions to mitigate the economic fallouts and protect the most vulnerable in our societies from what is already and sadly a social calamity. — Hammad Zamurrad
The writer is a London based Chartered Accountant with Master’s degrees in International Political Economy from King’s College London and International Relations at the University of Surrey.