The virus knows no boundaries. Just as Covid-19 has spread out its infectious thorns across the world with the one-size-fits-all impudence, so has it also subverted the established paradigms of doing business.
When, it comes to containing the fallout, the phrase on every policymakers’ lip is “whatever it takes.” But across the financial world, the dreaded word is “recession.”
The International Monetary Fund said it expects a global recession this year that will be at least as severe as the downturn during the financial crisis more than a decade ago, followed by a recovery in 2021.
Nearly 80 countries have asked the Washington-based IMF for emergency finance, managing director Kristalina Georgieva said on Monday. The fund strongly supports extraordinary fiscal actions already taken by many countries and welcomes easing moves by major central banks, she said.
The Institute of International Finance said on Monday that it projects a 1.5% contraction in the global economy this year, with advanced economies shrinking 3.3%.
Evidence of the devastation wreaked on the global economy mounted on Tuesday as activity surveys for March from Australia and Japan showed record falls. The results were consistent with a 4% contraction in the economy in 2020, Capital Economics senior economist Marcel Theliant said.
And the postponement of the Tokyo Olympics is expected to deal a heavy blow to the world’s third largest economy.
With frightening rapidity, that worst-case scenario has become the central forecast. With the US, euro area and China facing deep contractions, Bloomberg Economics estimates the cost of lost output in 2020 at more than $3tn.
While a recession is seen in the first half of 2020 and the beginning of a recovery in the second, the global economy is set to shrink -1.8% year on year in the first half of 2020, compared with growth of 2.9% in 2019. For 2020 as a whole, Bloomberg Economics forecast a -0.2% contraction.
The Covid-19 lockdown means a hard stop for the US economy. Bloomberg Economics anticipates a 9% contraction in real GDP in the second quarter. In a downside scenario, the economy could contract 14% in the period – outstripping the 10% plunge seen in 1958 – and extend the contraction to the second half of the year.
Measures to contain the spread of the coronavirus across the Middle East have caused economic activity to suddenly stop. The policy response for some countries is restricted by the meltdown in oil prices.
Needless to say, fighting the virus calls for patience, and in the long run, we are likely to have such as better options as a vaccine, or effective drug treatments. But the world cannot just afford to wait and hope, but needs attacking options to bring the deadly virus to its knees.
Here’s a silver lining.
“In contrast to the Asian financial crisis, the great financial crisis, or the European sovereign debt crisis – the coming contraction is not a reflection of underlying economic imbalances. When the outbreak is over, that means there’s hope growth can get rapidly back on track,” according to Bloomberg chief economist Tom Orlik.
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