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The Shrinking Global Economy, Back-up Plans?

In early March, the Institution for International Finance pre-assumed that due to COVID-19; the global economy will face a steep fall of up to 1%. On the second of April, the United Nations officially announced the shrinking of the global economy almost by 0.9%.

An unpredictable international health emergency,never has seen before in the history of mankind; a global pandemic that has taken the world by storm. Millions infected and thousand died in 200 countries and territories; COVID19 has led to a human tragedy in unimaginable proportion and disrupting the colossal public health disaster.

United Nation

United Nations, before the pandemic, predicted 2.5% economic growth in 2020 at a modest pace. But due to the attack of a novel coronavirus, a reversal form of growth will take place; in the form of degrading of the global economy by 0.9%.

It also showed concern that it may fall further if the restrictions in the defining economic sectors kept extended; without any proper backup plans.

Fear of Unemployment due to Global Economy Recession

UN Department of Economic and Social Affairs dictated a certainty of millions of workers losing their jobs due to the pandemic. The small and marginal scale employees are at the brink of losing their jobs. International Monetary Fund (IMF) 2020 and 2021 said that due to the pandemic there would be an estimated loss of $9 trillion.

World Trade Organisation 2020 expresses the certainty of a 13-32% decline in world trade and good 2020. But above this, the kind of unemployment that will be seen in the post-COVID era will be vulnerable and will require huge efforts on part of the government to again comeback to the state where their workforce previously was.

Most of the trade sector in developing countries are directly linked with the micro, small and medium enterprises. So it can be very easily guessed how adversely this economic recession is going to impact on trades caused by the disruption in production.

How is this Recession different from any other?

In a normal recession economic activities fall; it is not as bad as this one. This recession is collapsing both demand and supply. Since we can no longer produce, output supply chain is shattered by the coronavirus. It means people lose their jobs therefore demand falls and people can no longer pay their mortgage & their rents.

Economist expects this to be a V shape recession but that is just 30% thought. There is 5-10% certainty to be an L shape; i.e. it is going to take a very long time. And hosting this outbreak has delivered us the fastest, deepest economic shock in history.

Central banks and Governments are throwing trillions at the pandemic. unlike other recession which was caused due to the laws of motion of the economy, this recession is caused by a virus. This recession is primarily due to the fear of life. Every section of society is affected and is scared of it; from the most privileged to the most deprived.

How good Government has been at containing it?

Before this pandemic, Countries have faced a financial crisis, the Eurozone crisis,the great recession of 2009, and now, the virus adding more and more to make the situation worst. Central banks and governments have been carrying out stimulus policies to shore up the economies against pandemic

There isn’t that coordination at the international level between various governments, of the nature that we saw in 2008.

After Maths Post-Pandemic and Global Economy

The worst-case scenario predicted by DESA and WTO global trade can fall maximum by 32%. Post-pandemic, countries will try to rebuild themselves; accelerating the speed of growth, first inside the country than with the rest of the world.

To establish their position the world economy scale; countries will require a huge number of skilled personnel; and also for their economic growth. This may result in the second round of global integration, after what was seen in the first decade of the 20th century.

A Global problem needs a Global approach

The world has not had a virus that has been this transmissible and this deadly, since the Spanish flu in 1918. After the flu, we constructed this economy in which our production and distribution system cope up with each other; economy that is so massively interdependent.

The world economic forum says employers it spoke to also weren’t ready. Less than 10% had ever thought about pandemics as part of their current risk scenarios. And the effects of coronavirus can be felt for decades

It could split society further. It could even create sharper inequalities; drive a wedge between rich and poor. A massive increase in homelessness indebtedness, social conflicts. A much angrier electorate and a much more frustration public about this; but also a public that recognizes the need to move away from globalization to go back to Import Substitution.

The world will see a measure on a macroeconomic level which we have been unthinkable before. We might see a world of more government intervention, higher inflation rates, and higher interest rates down the road. The world will see more open financing of governments by central banks.

We have to reconsider the entire economic system. This is a wake-up call that technology and digitalization of the economy can help us but presently we are fragile and we are very vulnerable in this respect.

It will take time to recover from that very deep severe global economy crisis. And just hope that economists aren’t right about everything.

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Published by
Anshika Mishra

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