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Human tragedy Coronavirus affects global economy

 

 

Rayhan Ahmed Topader:

 

Having largely ignored Covid-19 as it spread cross China, global financial markets reacted strongly last week when the virus spread to Europe and the Middle East, stoking fears of a global pandemic. Since then, Covid-19 risks have been priced so aggressively across various asset classes that some fear a recession in the global economy may be a foregone conclusion. In our conversations, business leaders are asking whether the market drawdown truly signals a recession, how bad a Covid-19 recession would be, what the scenarios are for growth and recovery, and whether there will be any lasting structural impact from the unfolding crisis. In truth, projections and indices won’t answer these questions. Hardly reliable in the calmest of times, a GDP forecast is dubious when the virus trajectory is unknowable, as are the effectiveness of containment efforts, and consumers’ and firms’ reactions. There is no single number that credibly captures or foresees Covid-19’s economic impact. Instead, we must take a careful look at market signals across asset classes, recession and recovery patterns, as well as the history of epidemics and shocks, to glean insights into the path ahead. A new study has predicted that the global death toll from coronavirus could reach as high as 15million and the global economy will take a $2.3 trillion hit from coronavirus even in the best-case pandemic scenario.

According to the Daily Mail, the research data by the Australian National University show that in the most disastrous scenario, the death toll could reach a staggering 68million and some countries’ economies would shrink by as much as eight per cent in a global meltdown. The research paper was published by Warwick McKibbon and Roshen Fernando, who warn that ‘even a contained outbreak could significantly impact the global economy in the short run’. The researchers estimated that India and China would each lose millions of people. While the United States could expect to see 230,000 fatalties, 64000 are expected to die in Britain which has only seen one death so far. The study also predicted 79,000 deaths in Germany and 60,000 in France. The researchers estimated that India and China would each lose millions of people. If the research is to be believed South Korea and Italy, which have suffered particularly widespread outbreaks in recent weeks, would also be bracing for tens of thousands of deaths. The study further concluded that Britain’s GDP would drop by around 1.5 per cent, with America’s economy shrinking by 2.0 per cent and the global economy would take a $2.3 trillion hit. Britain’s GDP would drop by around 1.5 per cent, with America’s economy shrinking by 2.0 per cent and the global economy would take a $2.3billion hit.

According to the researchers’ data, the dead would include more than 12million people in China alone where as Russia’s fatality count would also be approaching a million in that scenario.

Researchers say that the probability of any of their projected outcomes are ‘highly uncertain’. It must be mentioned here that the current global death toll is 3,383 out of 98,703 confirmed cases. Though most of the cases are from China, but the virus has been spreading faster in other hotspots such as Italy, Iran and South Korea in recent weeks.

Governments, central banks, and organizations around the world are utilizing a range of policy tools to pad economies hit by the coronavirus. The G-7 announced it would monitor the outbreak and act appropriately to keep economies from contracting, but its statement didn’t name specific actions to be used. The Federal Reserve quickly responded to questions around the G-7 statement, issuing an emergency rate cut to boost consumer spending. Here are four policy actions employed against the coronavirus by monetary authorities so far, from rate cuts to flexible relief packages. Monetary authorities around the world are using every tool at their disposal to protect economies from the escalating coronavirus outbreak. Experts have already warned of profit stagnation, lagging GDP growth, and global recession as the virus tears into economic activity. Markets tanked through the last week of February on rising concerns of harsh economic fallout, and Treasury bills notched record-low yields as investors piled into less volatile assets. All eyes are now on central banks and treasuries to insulate economies from declines in consumer spending and dire supply shocks.

The G-7 announced on it would closely monitor the virus’ effects, but the group’s statement stopped short of naming specific policy responses. The Federal Reserve issued an emergency rate cut later that day, kicking off easing measures from peer institutions.

An epidemiological threat such as the new coronavirus, which causes the disease COVID-19, can have disruptive effects on the economy. It can disrupt the global supply of goods, making it harder for U.S. firms to fill orders. It can also waylay workers in affected areas, reducing labor supply on one end and on the other slow the demand for U.S. products and services.International Monetary Fund Managing Director Kristalina Georgieva says the outbreak is the world’s most pressing uncertainty. The economic disruptions caused by the virus and the increased uncertainty are being reflected in lower valuations and increased volatility in the financial markets. While the exact effect of the coronavirus on the U.S. economy is unknown and unknowable, it is clear that it poses tremendous risks. Policymakers should therefore immediately undertake a number of steps to address any economic fallout from the virus. The burden of meeting this challenge falls squarely on Congress and the Trump administration. To its credit, the Federal Reserve has aggressively cut interest rates, but monetary policy will likely have a very limited effect since interest rates are already low and have been so for some time.

To put the U.S. economy on steady footing, CAP recommends that Congress and the Trump administration engage in fiscal stimulus and embrace five key principles for economic policy action in response to the coronavirus: The coronavirus spreads more quickly than SARS, but, so far, seems to have a lower mortality rate. For its part, China responded more quickly to the coronavirus outbreak than it did with SARS, employing unprecedented confinement measures in areas such as Wuhan. These measures, while prudent, have created short-term economic pain on the supply-and-demand side. Outside China, the outbreak has also affected global supply chains, as other governments have also taken immediate steps to slow the spread of the virus. The Harvard Business Review predicts that the peak of the impact will occur in mid-March, “forcing thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe.” This again will disrupt global supply chains as well as demand for goods and services in the affected economies. These disruptions make it more difficult for companies in the U.S. and elsewhere to bring their goods to customers, and these companies will reduce exports from the U.S. to the rest of the world in the coming months. Furthermore, households, companies, and governments alike are deeper in debt now than they were when SARS hit. For example, the U.S. nonfinancial corporate debt of large companies is currently around $10 trillion, up from around $4.8 trillion in 2003.

With the spread of the coronavirus, the United States is facing a potential “black swan event”an extremely rare and unpredictable incident that has potentially severe consequences. Therefore, it is important to act swiftly and in meaningful ways to minimize the fallout from this shock. Now is precisely the time for deficit spending: Low interest rates make it cheap and easy for the government to finance itself while limiting the potency of further monetary stimuli from the Federal Reserve. Therefore, it is incumbent upon the federal government to provide fiscal stimulus to ignite economic activity. In other words, the government needs to engage in sizeable spending and investment in key areas of the economy in order to increase economic activity; minimize disruption to the health and prosperity of the population; and to limit the effects on supply chains and the business sector.

Writer and Columnist

raihan567@yahoo.com