The challenges and opportunities to global economies as Covid-19 spreads across countries.
“The world economy crises triggered by the Covid-19/Coronavirus outbreak have made global recession a certainty.” — Deepak Kaistha
The World Health Organisation, WHO, has now conceded that Covid-19 is a pandemic caused by the Coronavirus. India has closed its borders to foreigners and the USA has barred Europeans from entering its soil. Universities across states in the USA are among the most recent to begin online classes for students in an attempt to check the spread of the deadly Coronavirus. Students have been asked not to come to their respective universities. Italy’s lockdown on Tuesday, March 10, to contain the virus is unparalleled in peacetime. Italy is a democracy of 60 million people who are now restricted from moving within regions and outside their country. This crisis response is possibly on the scale of World War II say its citizens.
— Donald J. Trump (@realDonaldTrump) March 12, 2020
Coronavirus infected countries and the destoryed world economy
Coronavirus has infected the world economy irrpairable. It began in Wuhan, in China, and is possibly transferred from animals to humans. It is spreading quickly worldwide and has already infected over 100 countries.
At the last count 118,000 people have tested positive for the disease, and 4300 people have died. In India, there are 77confirmed cases, and one death caused by the virus.
A challenge to the world economies
The coronavirus pandemic is ensuring that no amount of fiscal measures in the form of rate cuts by central banks and policy makers will save the world economy, as people are not coming out of their homes.
Either they are ill, or are at home caring for the ill members in the family; or refusing to come out, as they are scared of being infected.
The scale and spread of the virus has dampened demand, and supply forcing central banks and policymakers to act as caregivers in the form of ensuring funds to businesses, households, and workers to tide over their situation.
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China is the global factory, the global supply chain. But in the wake of the pandemic the chain has broken. According to recent reports, although China has re-started production in its factories — it is only at 20 per cent of its entire capacity. Also, migrant labour forms an integral part of its economy, but currently they are still under quarantine.
When will the global economy restart — will depend on how long it will take to contain the virus. But one thing this crisis is highlighting is the need for alternative manufacturing bases for global companies to source their supplies from.
Nations worldwide may possibly prefer to find alternative bases in more ‘de-globalised’ markets like India, as its economy is only partly dependent on the rest of the world. Oil prices have fallen and oil importing countries like India are the beneficiaries.
The country has a large domestic market, a proven prowess in IT, and manufacturing expertise in industries like steel, hi-technology, pharmaceuticals, mobile phones, textiles etc. India too, is seeking to de-risk its supply chain as it imports 18 per cent of its requirements from China.
In doing so, it is likely to attract global manufacturers to invest in its markets. However, this will require an enabling and favourable policy environment to be shaped by the government, credit availability, lower commodity prices, structural reforms to build more infrastructure, the right taxation structure to save world economy from the deadly coronavirus – the recent cut in the corporate tax rate is a positive step – factor markets, and data privacy.
Looming fears of a global recession
The financial markets are apprehending an impending disruption in world trade, and even a global recession. On March 9, the stock markets fell to levels not seen since the global financial crisis in 2007-08. The S&P 500 index dipped by 7.6 per cent, the FTSE 100, which represents oil firms, such as Shell and BP, and other natural-resource companies, fell to similar levels. In the bond markets, the 10-year American Treasuries dipped below 0.5 per cent for the first time ever.
Gold rose above $1,700 an ounce for the first time in seven years.The immediate trigger was a collapse in the oil price, following a meeting of OPEC ministers and other oil producers on March 6, to discuss a cut in output levels to reflect the fall in demand for oil. But Russia (not an OPEC member) refused to reduce its output, so Saudi Arabia, OPEC’s largest producer, responded by increasing output and offering discounts to its customers, launching a price war.
As a result the Brent crude price fell by around a third, touching almost $31 per barrel, before recovering a few dollars.
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Conclusion
For now, with coronavirus uncontrollable, world economy is still forming a strategy to tackle the global recession that will be caused by the virus (Covid-19) because of globalisation and the dependence of global economies on a single nation, to feed their supply chain.
— By Jayadipta Chatterji Mehta
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