IMPACT OF THE CORONAVIRUS PANDEMIC ON THE GLOBAL ECONOMY
Initial Outbreak — A de-facto Quarantine
On December 31, 2019, the initial reports of the coronavirus cases were heard by The World Health Organization (WHO). The virus was previously unknown but surprisingly engendered quite an ample number of pneumonia cases in Wuhan. Several deaths were also reported following the spread of Covid-19. It started as an epidemic in the Eastern city of China with over 11 million population, Wuhan but soon managed to make its way to become a pandemic.
The initial response towards the outbreak was very obvious, the city of Wuhan and the nearby cities comprising roughly the population of 50 million people in the Hubei province were put under quarantine by the government of China. The virus then took the toll on Italy whose death count surpassed that of China. Soon, several people from many different parts of the world including some notable personalities: the Prime Minister of UK, Boris Johnson, the President of Brazil, Jair Boilsonaro, Prince Charles reportedly caught the virus, and WHO declared it a global pandemic and a state of emergency.
Radical Uncertainty about Future of Economy
The reliable international sources for economic research, the International Monetary Fund (IMF), the Bank for International Settlements (BIS), and the United States Federal Reserve have laid various reports making an effort to look into the future of the economy in the developed and the developing world. However, the present-day analysis revolves around certain uncertainties and doubts.
According to the IMF, by the end of 2020, the global economy will shrink by 4.9 per cent. However, the forecast was quite different just 2 months back, in April, it was depicted to contract by 3 per cent. The IMF points out higher than normal degrees of uncertainty and thus the general picture poses daunting challenges for the policymakers. The large degree of acute uncertainties makes it complex for the policymakers to work out any foolproof and infallible strategies. According to the Bank of International Settlements (BIS),
‘It is difficult to look ahead in the midst of a storm, but once the winds subside the task will be to navigate in waters that are familiar in some respects, but potentially more treacherous than other’
BIS is cautious that too little can cause bankruptcies that can prove catastrophic for future economic growth.
Dawn of a New Era
Since the spread of coronavirus, half of the Earth’s population are adhering to the lockdown protocols in some way. The virus has been merciless irrespective of the continent; all some form are following the measures. A large portion of the world economy has come to a standstill and around 180 countries have plunged into an intense recession. These are the same countries who were experiencing economic growth and prosperity.
Economic Carnage to Come — Grim Prognosis
Covid-19 that started from China and has managed to infect the masses irrespective of their nationality or ethnicity is all set to take its toll on the economy in the long-run. The current situation raises many questions, for instance, once the lockdown is lifted, what will be the extent of “voluntary social distancing”, or whether there would be any voluntary social distancing? How much time will it take for the laid-off workers to find new jobs? And what will it require to bring back the supply-chains?
According to BIS, ‘The legacy of the Covid-19 crisis will linger for a long time to come.’ The impact of economic decline is expected to be seen almost everywhere. According to the International Labour Organisation, keeping in view the statistics of the global decline in working hours for the period of 3 months between January and March equates to the loss of 130 million full-time jobs and that of April to June equates to the loss of more than 300 million jobs. The hardest-hit has been on those workers who are not capable of ‘work from home’ strategy and thus have succumbed to the loss of jobs.
Colossal Damage to the Advanced Economies
It was predicted by the IMF in April that the advanced economies would crash by 6.1 per cent, however, their current statistics assert that it would rather be 8 per cent. Considering the economy of the US, it was estimated in April by 5.9 per cent, however, the recent figure gives a different picture; it is estimated to tank 8 per cent. Similarly, in France, Italy, Spain and Britain, the virus will take the toll on economies by double-digit contractions. Economists predict that every region of the world will record negative economic growth in the post-COVID period.
All the predictions point towards the trigger of the worst recession after the great depression of the 1920s. The economic forecasts contain both upside and downside risks. Considering the upside shift, there can be some mesmerizing news of vaccine development, treatments, and the policy support of the quicker regain of the economy. On the side, the downside shift can come with increased waves of infections which can further tighten economic conditions and decreased mobility and spending.
Developing Economies on the Cusp of Collapse
It was forecasted in April that the developing economies will contract 1 per cent. However, the July statistics present a different picture; the emerging markets will shrink by 3 per cent. The global financial markets have experienced the largest outflow ever recorded, that is, the investors have moved out around $90 billion from the struggling markets.
This alarming situation drags the Least Developed Countries (LDCs) to a new debt vulnerability. To decrease the intensity of damage, certain steps are being taken for instance;
- 2020 Financing for Sustainable Development Calls
- Strengthening the World Financial Safety Net
- Reversing the Decline in Official Development Assistance
- Suspending Debt Return for LDCs
- Assistance for low-income countries.
The experts from World Health Organization (WHO), United Nations (UN), United Nations Development Program (UNDP) are deeply concerned about the catastrophic effects of coronavirus on the economies of developing countries in the long-run. Due to the damaged supply chains and decreasing demands for their goods following lockdown, they are unable to sell their resources. Consequently, these economies are expected to see the income losses near $220 billion according to the statistics provided by UNDP.
Paradigm Shifts: Industries, Careers, Economies
Covid-19 is engendering a paradigm shift impacting the working of every industry around the world. One of them is the realignment of supply chains. Disruption in the supply chains has caused the loss of many jobs hence its restructuring is needed. Secondly, since the physical contacts have become limited in the wake of coronavirus, hence there is an increasing trend of digitalization. “Work from home” strategy has created the era of cyberspace. In addition to that, there is an increase in the role of government.
The virus has struck a serious blow at the entire leisure industry. The entire human activity has been affected. The production and service industries have come to a grinding halt. Additionally, the sector of global transportation has been dismantled. According to the statistics of the World Trade Organization (WTO), by the end of this year, the trade across the world will contract by 13 and 32 per cent. According to some economists, the near future will be the era of bilateral dependency as no country will be able to rebuild its economy on its own, rather there would be myriad instances where there would be missing pieces to the completion of a product.
Global liquidity: Financial Ramifications
Many businesses are facing strain as the free markets and the world’s economies are met with many market shocks. Consequently, there is a varying degree of distress over slowing economic growth. The economists and the investors must watch the clock as the eventual economic recovery depends on the speed, that is, how quickly the markets will recover. If there is a quick recovery, the financial sector will regain the losses. However, if the recovery is slow, the economic conditions will tighten.
The Legacy of Debt
The world is on the edge of falling to an extensive debt vulnerability. The developing countries are stuck between two impossible choices of whether to spend their resources to shield their population from the upcoming challenges to fight the pandemic or to repay their debts. Also, UN officials warn that this debt crisis can hold horrible consequences for LDCs. Also, many of the developing economies don’t have access to the financial market to cover the repayment of interest.
Since the end of the Great Depression, the world’s worst recession is on the way. According to the IMF and World Bank, about 40 per cent of the countries with low GDP was already facing the debt crisis and the virus has caused a serious blow to the already crippled economies. Emergency IMF financing has been requested by as many as 100 countries to cope up with the repercussions of coronavirus both in the medical grounds and the economic grounds. Ultimate wisdom and resilience are needed to decrease the intensity of the economic recession that the world is destined to face following the post-COVID period.
Eroding Illicit Financial Flows (IFFs)
There has been a growing concern over the threat that illicit financial flows may accelerate with the incursion of the corona crisis. This is because the governments would be distracted and occupied by the economic collapse and this can simultaneously elevate the scale of IFFs. The developing countries, in particular, would be acutely facing such concerns provided regulatory policies, not-so-strong government and the rising corruption. Trade misinvoicing, human trafficking and other forms of IFFs have been occurring throughout the world but its acceleration is expected to be one of the repercussions of the coronavirus.
Global Financial Integrity (GFI) is considering IFFs to take a serious toll on the developing economies as a huge amount of trade taxes will be lost that are meant to be invested in the medical facilities, financial rebuilding and the education sector. Things are expected to get even worse in the wake of coronavirus. The dynamics that push IFFs, for instance, currency exchange from poor to comparatively stronger economies and the political upheavals, are on their way to intensification. Hence, the situation projects rise in the indices of such crimes.
An onslaught of Financial Bubbles:
The increasing risk of financial bubbles can result in another economic crisis in the already crippled economic system. There will be unknowable mayhem of free markets. This could force investors into excessive risk-taking and can cause the emergence of speculative economic bubbles. As a response to the damage caused to the real economies by the pandemic, central bankers, while trying to grapple with the huge debt levels and ballooning financial bubbles, can ignite another financial crisis. We can hope that one day the pandemic will be behind us but its repercussions will follow the world for many years to come maybe in the form of economic bubbles.
Diabolical Dilemma Looms
The authorities of many countries are concerned that even after the coronavirus curve is flattened. The pandemic will only vanish if enough people are affected to develop the required immunity or if there is a case that scientists develop the vaccine for coronavirus. The economists are worried that even if the pandemic gets over, and the virus vanishes from the map, its legacies will follow us for so many years to come. We are well-aware of the post-crisis situation and the post-COVID period will not be much different. The peak in inflation will bring all kinds of evil with it. Thus, the post-COVID period will surely be a test for humanity.
Many experts argue that the psychological effect of the coronavirus and the pandemic may not go away anytime soon. Its effects may linger on our minds for the time to come. People from all ages have suffered in some way after the onslaught of the pandemic. For instance, parents have lost their jobs and children have seen their classrooms getting closed. Proms and graduation ceremonies have been cancelled. Unemployment has hyped during this time. The adults are out of their college and have also lost their respective jobs.
Young people are fearful whether they will ever be able to get back their jobs they have lost recently. They are not sure if they will be able to get ahead in their careers. Many people deem this condition worse than bad. The brutal collapse of the countries’ economies may continue to haunt their respective citizens. It may come along with the horrors of sickness and death.
The predictions are that the remote workforce is here to stay. Since this strategy has cut down many of the expenses from the building charges to office rants. Hence, not all businesses are bringing their employees back into the offices. According to them, work from the home strategy is not only doable but is on the advantage. Many of the business owners are already working to downsize their offices and buildings are instead working to form an appropriate remote workforce strategy that can prove helpful for them in the coming days.
From “Digital Age” to “Hyper Space”
The post-COVID economy will follow a complete shift towards ‘hyperspace’. The term ‘hyperspace’ implies a reference towards science fiction which literally means “a notional space”. It is not that the new technology was not available in the recent past. It is just that there will be more prevalence in the post-COVID economic world. Albeit rather this technological bloom will be caused by the mass adoption of the already existing technology.
For instance, the video communications through various apps such as Zoom, Google Meets, Skype and Microsoft Teams. All this is for the Classroom meetings, parliamentarian meetings and several other reasons. The extent these apps are being used has never been seen before. Once the businesses open after the pandemic, the users will not use the primal methods rather it is expected that these methods will continue to prevail for the future to come. Since people have become comfortable with the efficiency and the ease these services have brought to theory lives, these apps are not to be replaced any sooner.
Customer Journey Maps
Customer journey maps will most certainly be redrawn after the pandemic ends. The typical customer journey will be way different. Hence, the businesses will have to redefine many of the prevailing aspects. The experts have been emphasizing upon these things that there is a dire need to go through the customer journey mapping exercise. Consequently, they ought to work out new journeys to map and cut down on some old techniques.
Some of the businesses are already opting for new business processes and workflow techniques. They are apparently aware of the new ways customers will prefer to meet their daily life needs. Hence, the companies are trying to prepare themselves for the post-pandemic era and to support their customers. Ryan Lester, senior director of CX technologies at LogMeIn says that.
“Brands will need to either throw out or drastically redraw their customer journey maps to accurately reflect the new model of customer behaviour post-COVID-19”
The New Gig Economy
During the pandemic, the food delivery services have adopted the methods of contact-free delivery, for instance, Uber Eats, GrubHub, etc. All these services were because of the provision of convenience and safety. Since many of the people have lost their jobs there will be more “giggers” in the coming days, who are willing to do tasks and errands for others in exchange for money but are not really kept for the proper job. All those who have lost their jobs because of the pandemic will in a short time be working as independent contractors. There will be an increase in freelance labour and personal concierge services. This pandemic has brought many changes so fast that they were nearly impossible to imagine earlier. The world will surely take a big turn and we will then have to adopt the “new normal”
Globalisation — A New Outlook
Scholars think that globalization may not diminish after the demise of coronavirus, but it will surely look different after the pandemic. Because of the newfound fear for the viral microbes, people will be highly reluctant to board on an aeroplane. There will be a substantial decrease in stays in hotels. Along with people will think twice before attending a concert or taking their kids to the parks or any other places of refreshment.there will probably be a mass exodus from expensive and densely populated cities. Hence, there will be a new outlook for globalisation after the coronavirus ends. There will be the demise of departmental stores due to a sudden paradigm shift to online shopping. This may wipe out the majority of independent retailers and restaurants. Furthermore, hundreds of colleges and universities will be forced to close their doors. Among those institutions who would survive, they are most likely to adopt the online methods of teaching.
Inequality of Income and Wealth
The inequality of income and wealth will ominously accelerate. The policymakers and the economists are persuaded that vast economic inequality will prevail with the lack of strong, stable and broadly shared economic gains and well-being. The economic power among the elite has given them the upper hand in the social and political power. These people having economic advantage will be able to design a system of economic inequality which will make sure to preserve their position.
Inflation is expected to get impetus after the pandemic. For the recovery back to the normal economy, countries will increase taxes. To meet with the demands, there will be a shocking rise in the prices of the commodities. It will be really hard to cut the spendings especially since there have been critical inadequacies in the healthcare systems. Hyperinflation may move forward with a much greater force.
U-Shaped or V-Shaped Recovery?
The Bank of International Settlements (BIS) asserts that there would be a W-shaped or a wave-shaped recovery with uncertain length instead of U or V-shaped because both of them can prove to be elusive. In the V-shaped recovery, since it depicts a sharp and defined but a brief period of economic decline, the observers deem it as “out of the question” even the U-shaped recovery doesn’t seem suitable in case there may be some new waves of infections and the lockdown is reimposed with the other precautionary measures. This can prove hazardous for economic and fiscal policies.
Possible Winners in the Post-Pandemic Economy
The onslaught of coronavirus has shifted the world businesses towards automation; certain business sectors can prove to be more successful as compared to others. For instance, the businesses that use cloud computing are in safer hands and will handle the post-pandemic pressure. This is because of the popularity of cyberspace that cloud computing can improve efficiency along with productivity. This can assist the businesses for the digital payment methods for the employees who are working from home.
Another way is further automation through Artificial Intelligence (AI). This robotic automation can provide resilience and agility for the quick recovery of economic losses and thus can minimize the pressure on the economies. Furthermore, transmission risks can be curtailed through virtual interactions. Also, humans won’t be working face to face and hence, can cut down manual intervention.
More China — Centric Globalisation
Researchers think that once the pandemic ends there will be a shift away from US-centric globalisation towards China-centric globalisation. In the era of the pandemic, China has been a leading economy and has higher success chances in the post-COVID economy. There has been a lot of research on why this trend will continue to prevail in the world even after coronavirus vanishes and the pandemic ends. There have been some of the really interesting explanations to present this scenario. Now if the US wants to contribute to the post-COVID globalisation, it has to partner with China.
Impact on Pakistan’s Economy
Just before the onslaught of coronavirus, Pakistan’s economy was beginning to show some progress. Because of the lockdown, China has restricted its trade which has badly impacted Pakistan and other Asian states who are closely connected to Chinese trade. Experts say that the coronavirus pandemic can derail Pakistan’s economy. Various industrial sectors of Pakistan are in crisis. Along with it, there is a severe rise in unemployment. The economy as a whole is moving towards a budget deficit and shrinkage.
At the time of writing these lines, experts are considerate that in the post-pandemic world, the virus would take a huge toll on the economy of various regions. The incessant growth of debt, the diabolical dilemmas and all the other worrisome factors can lead to the clamour of the affected lives. It is high time that the governments of different countries start giving subsidies for businesses, the sectors which can meet the demands within the country should be given bailouts. In a word, it is time that we take our heads out of the sand and start forming and executing appropriate strategies for the post-COVID world. With unswerving fortitude and resilience, we will be able to fight the economic crisis that awaits us.