Is Coronavirus Leading the World Economy into Recession?

As coronavirus spreads to another parts of the world, the fear of world economy going into another recession cannot be rejected

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The coronavirus disease or as classified by WHO “COVID 19” originated in the Chinese central city of Wuhan in December 2019.  It is a respiratory disease that can spread from person to person. The risk of infection spreading through close contact alarmed the Chinese authority. The virus probably emerged from an animal source but now spreading through infected human beings. The virus travels through respiratory droplets produced by cough and sneezes. The high risk of the virus spreading through close contact created a situation of panic among the citizen of the resident of Wuhan, A major manufacturing hub of IT products. The virus reached other parts of Mainland China quickly. As COVID 19 spread rapidly the Chinese government took an aggressive stance and put Wuhan on complete lockdown.

The Wuhan lockdown delayed the spread, but won’t reduce its long impact. China also known as the Factory of the world, producing one-third of global goods suffered a huge blow from factories to workers all were put on virtual quarantine. Chinese economy recorded the highest urban unemployment rate in February with the unemployment rate rising to 6.2%. A sharp fall of 13% was recorded in industrial output. Initially, the economy suffered a supply shock with factories unable to operate. The retail sale fell drastically by 20.5% along with fixed investment by 24.5%. The Chinese President’s steps to revive the economy had not desired effect.

According to the experts, a V shape recovery of the economy is unlikely as the virus is spreading everywhere. The central bank in China has taken some monetary policy measures to help stimulate the economy. According to Chinese officials, the peak has passed but it may take months to recover but some experts are of opinion that this might be a bigger blow than Global Financial Crisis.

At the same time, the World health organization declared Europe the new epicenter of the outbreak. Hardest hit Italy has placed its 6 million residents under virtual lockdown as the virus has spread to all the regions of Italy. It also announced increased spending on its healthcare, Airlines and postponing tax deadlines. Similarly, Other European countries are taking an aggressive stance to contain the virus. France may intensify its national lockdown it also announced the spending an additional of 40 Billion Euros to counter the economic impact of the lockdown. Russia is taking similar steps with $4.1 Billion crisis fund, paid leave for workers, tax holidays and paid self-quarantine to suspects of COVID 19. The European Commission has lowered the GDP growth rate for the EU to be Negative 1 percent.

The Kenyan TV news is filled with images of customer panic buying in the Capital city of Nairobi. Africa, the poorest continent with most underdeveloped nations, poor healthcare systems, insufficient infrastructure, and porous borders are most vulnerable to such epidemics. Most African economies are dependent on export to China due to which there are direct and indirect effects on the financial market. For continent like Africa, containment is the most appropriate strategy.

South Asian Giant India reported a total of 125 cases of COVID 19 with 3 fatalities. In order to contain the spread India has canceled all visa issued till 17th of March, 2020. Indian financial markets have suffered the most as BSE Sensex fell by 6.19%.the market in the past few weeks has seen a heavy sell-off due to prevailing uncertainty. The Indian Entertainment industry which provides a large number of jobs has also suffered as events, award shows, functions, interviews and shooting schedules till March 31 has been canceled.

After images appeared from New York as worried residents hoarding essential goods from the supermarket, USPresident Mr. Donald Trump requested the citizens not to worry, boasting the US has the greatest supply chain in the world. Several public places in big cities such as Los Angeles or New York have been shut, the restaurant only serves to take away meals.

During February 2020, the International Air Transport Association (IATA) published an analysis that predicted a revenue loss of $29.3 billion, based on a scenario that would see the impact of coronavirus largely confined to markets associated with China. Since publication, the virus has impacted over 80 countries and forward bookings have been severely impacted on routes beyond China. The outcome is a 19% loss in worldwide passenger revenues, which equates to $113 billion. Financially, that would be on a scale equivalent to what the industry experienced in the global financial crisis. Many airlines are cutting capacity and taking emergency measures to reduce costs. Airlines are doing their best to stay afloat as they perform the vital task of linking the world’s economies.

Britain’s hospitality industry contributes more than 120 billion Euros a year to the economy and is worth more than the automotive, pharmaceuticals and aeronautics industries combined. More than 3.2 million people work in pubs, restaurants, and other outlets, making it the third-largest sector for employment. A further 2.8 million work in the wider supply chain as the tourism industry has been hit hardest, it might lead millions to joblessness.

The Chinese tourism industry grew rapidly with the emergence of an affluent middle class is now a market of 618 Billion Euros. Due to complete travel ban by more than 50 economies, the Chinese tourism industry has come to a complete halt. The industry generates revenue worth $40 Billion from international tourists. Outbound travel restriction imposed on Chinese national is affecting Switzerland, USA, UK, and many other Europeans countries as more than 120 million Chinese visit abroad and spend an estimated budget of $277 Billion.

Global stock markets have sunk again despite central banks around the world announcing a coordinated effort to ease the effects of the coronavirus. After President Trump said the economy “maybe” heading for recession. The Dow Jones index closed 12.9% down, its worst percentage drop since 1987. The wider S&P 500 dropped 11.9%, while NASDAQ dropped 12.3%.

On Sunday, the US Federal Reserve cut interest rates to almost zero and launched a $700bn stimulus program. It was part of coordinated action announced alongside the Eurozone, the UK, Japan, Canada, and Switzerland.

However, investors are worried that central banks now have few options left to combat the impact of the pandemic.

In New York, steep falls as markets opened triggered another automatic halt to trading, which is meant to curb panic selling. Before last week, such halts had not been used in more than two decades.

The FTSE 250, which includes a number of well-known UK-focused companies, ended down about 7.8%. They later regained some ground. France’s Cac 40 index fell more than 5.7% and Germany’s Dax dropped more than 5.3%.

Earlier in Asia, Japan’s benchmark Nikkei 225 closed down 2.5% and the Shanghai Composite in China ended the day 3.3% lower.

Oil prices, which have been shaken by a price war between exporters, fell again. Brent crude dropped by more than 10% to less than $32 a barrel.

An unlikely beneficiary emerged out of the coronavirus pandemic: The Earth Factories were shut, streets cleared across the Hubei province and in other parts of mainland China as authorities ordered residents to stay home to stop the spread. It seems the lock down had an unintended benefit — blue skies. As the world’s biggest polluter, China contributes 30% of the world’s CO2 emissions annually. The satellite images released by NASA and the European Space Agency captured a dramatic reduction in Nitrogen dioxide emission.  Similar patterns emerged with Carbon Dioxide released due to the burning of fossil fuels. A fall in oil​ and​ steel production and a reduction in 70% of domestic flights contributed to ​the​ fall in Carbon emission.

However, the world economy was already under pressure before COVID 19 outbreak as the trade war between The US and China weighed on growth. With no specific antiviral treatment and prevention as the only measure, the epidemic has already had economists downwardly revising their global growth forecast with some suggesting it may tip the world economy into recession.

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Article Name
Is Coronavirus Leading the World Economy into Recession?
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As coronavirus spreads to another parts of the world, the fear of world economy going into another recession cannot be rejected
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THE POLICY TIMES
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