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Coronavirus recession could become a depression



Rayhan Ahmed Topader:


As the shroud of crisis had started to lift at the center of the coronavirus epidemic in China, Beijing launched a powerful campaign to project an image of global leadership while the United States and countries across Asia, Europe, and the Middle East have taken on water. During a call with the Italian foreign minister last month, the Chinese foreign minister had expressed his hope that their joint fight against the outbreak would catalyze a Silk Road of health care, alluding to the hallmark economic Belt and Road Initiative of President Xi Jinping. Chinese diplomats have proselytized the deft handling of the outbreak by Beijing. It may have stood the test of time for more than two centuries, but seeing how things are panning out in the wake of COVID-19, the old saying about ‘adversity making strange bedfellows’ no longer seems to hold good. Resultantly, even though various international bodies and health organisations are calling upon the global community for concerted action and world leaders are also waxing eloquent on their commitment in jointly tackling the worst pandemic in living memory, international cooperation on this account is conspicuous by its absence. Even though the debate on who’s responsible for the COVID-19 outbreak is immaterial at this stage, but yet the blame game between Washington and Beijing continues unabated. While speaking to Chinese official Yang Jiechi on phone, US Secretary of State Mike Pompeo reportedly stressed that this is not the time to spread disinformation and outlandish rumours, but rather a time for all nations to come together to fight this common threat.

As the novel coronavirus known as Covid-19 spreads rapidly across the world, we now face another dimension of the globalisation and its discontents argument. A pandemic-induced paranoia could be globalised very quickly, with a host of haunting repercussions. Cultural norms such as shaking hands and hugging as a form of greeting are changing, since they are now considered a conduit for human-to-human transmission of the coronavirus. Over a dozen countries have closed their schools amid the global public health emergency, according to the United Nations Educational, Scientific and Cultural Organisation. As a result, over 300 million children around the world are stuck at home. The empty airports in New York, London, and other metropolises around the world have become anti-icons of our world, which is suddenly finding itself unprepared to contain a plague. Holy sites like the Kaaba in Mecca and the Church of the Holy Sepulchre in Jerusalem are suddenly empty, provoking many to express discomfort at having to mull over the mysterious intersection of faith and science.The COVID-19 virus is known to spread through tiny droplets ejected by affected people when they sneeze. Anyone contact with such droplets by inhaling the aerosolised air within close proximity of an infected person or shaking hands with such a person or even touching a surface such as chairs, tables or basins, where such tiny droplets might have settled down. In view of this, any crowded place such as classrooms, movie theatres, conferences, train stations, airports, restaurants, places of worship and shopping malls are highly susceptible to becoming purveyors of this nano-organism that can be quite lethal for older people.

Coronavirus infection can bring about a major national catastrophe, which we do not want in any way. That is why we have to take maximum precautions and preparation from now. The government is aware of this. People of Bangladesh were advised to avoid travelling abroad. At the airport, arrangements have been made for health check-ups and filling health forms for all the arriving passengers. It is necessary to take all kinds of preparations, including detecting coronavirus in hospitals. Initiatives to raise public awareness must be strengthened. Everyone has to be careful. Anyone showing signs of a coronavirus infection should be taken to a hospital, clinics or health centres immediately. Besides government initiatives, every individual, family and institution must be aware and careful in order to deal with the risk of coronavirus. Such coordinated global actions would have put the global economy on a more inclusive and sustainable path, more capable of handling a global pandemic and its economic and social consequences. Instead, the global economy has been artificially kept afloat with unconventional monetary policies which contributed to many undesirable side-effects.

The coronavirus pandemic seems to have finally forced governments around the world to ditch their obsession (at least for the moment) with delivering budget surplus. As stock markets tumble, stimulus measures, worth billions of dollars, are announced to boost investor confidence and consumer spending to keep economies running. Even though some individuals and businesses may face cash-flow problem, this is not a liquidity crisis.

It is primarily a supply shock to the global production or ‘value’ chains due to factories shut down to limit the spread of the virus in China, which accounts for close to 30% of global manufacturing. However, this massive supply shock is spilling into demand shocks as people are unable to go to work, earn and spend. Significantly, in an over-financialised world, stock markets dominate as a source of wealth, making economies hostage to the investor sentiment. Therefore, sharp stock market declines worsen the negative wealth effect, further reducing aggregate demand. Therefore, if the pandemic persists and supply chain disruptions become widespread with countries ‘lockdown’, the stimulus package may exacerbate the dynamics of negative supply-demand spill-overs. This can result in rising inflation and unemployment or ‘stagflation’. The risk of a deep global stagflation, worse than the one in the 1970s, is quite high, especially when governments are acting alone. Developing countries, with limited capabilities, are particularly vulnerable as their economies have become more dependent on international trade and finance and investment after decades of economic liberalisation, openness and government capacity erosion. Certainly US$15 million from the UN’s Central Emergency Response Fund will help vulnerable countries battle the spread of the COVID-19. The IMF and the World Bank have announced emergency support packages. But most of the money from the IMF and the World Bank are loans, often attached with conditions favouring their most influential shareholders.

The UN Secretary-General’s call for a Global Green New Deal to simultaneously stimulate recovery, address the climate crisis and reverse growing inequality. Such coordinated global actions would have put the global economy on a more inclusive and sustainable path, more capable of handling a global pandemic and its economic and social consequences. Instead, the global economy has been artificially kept afloat with unconventional monetary policies which contributed to many undesirable side-effects. Let us not waste this one. Therefore, the stimulus packages should be carefully designed to rebuild the social protection and national health systems. It is well known that “universal systems find it easier to mobilise resources and adapt rules and practices than fragmented, private ones that have to worry about who pays whom and who is liable for what”, as recently highlighted in the Economist. For longer-term resilience, sustainability, social cohesion and shared prosperity, governments should recalibrate their policies to achieve balanced global growth; to create decent jobs; to address rising inequality; and to tackle climate crisis. This would require inclusive policymaking at the global level, involving developing countries. At the national level, institutionali-sing social dialogue involving workers, professionals, businesses and civil society organizations will be necessary.

To date, international collaboration has been woefully insufficient. If the United States and China, the world’s most powerful countries, cannot put aside their war of words over which of them is responsible for the crisis and lead more effectively, both countries credibility may be significantly diminished. If the European Union cannot provide more targeted assistance to its 500 million citizens, national governments might take back more power from Brussels in the future. In the United States, what is most at stake is the ability of the federal government to provide effective measures to stem the crisis. In every country, however, there are many examples of the power of the human spirit of doctors, nurses, political leaders, and ordinary citizens demonstrating resilience, effectiveness, and leadership. That provides hope that men and women around the world can prevail in response to this extraordinary challenge.

Writer and Columnist