The novel coronavirus disease, which ravages many countries of the world, is a potential trigger for global recession, writes RAHEEMAH AROGUNDADE
The sudden twist in the fate of the world brought about by the fast-spreading coronavirus disease has led to unprecedented life-changing adjustments in the people’s way of life, as well as that of communities, countries and the world at large.
Health is now prioritised over education, economy, laws, government and sports. In the face of this pandemic threatening humanity, warring countries have taken a break, terrorist activities have declined, and criminal activities have been put on hold. Also, public gatherings have been prohibited, travelling banned and events cancelled, while stock markets and economies have been falling. Education is now virtual, even workers work from home – the world is forced into a compulsory digitisation scheme. There is cooperation by all and sundry to end the pandemic
Amid these, the economy of most countries is the mostly affected. The survey by PricewaterhouseCoopers indicated that more than half of financial leaders believe that COVID-19 could significantly impact business operations.
Prior to the spread of the virus, there seemed to be a lot of prospects for the global economy. Although there was a decline in the growth of the global economy in 2019 from 3.6 per cent to 2.9 per cent, yet there was no recession. As a result of the promising outlook, the International Monetary Fund had then projected a global growth rebound by the year 2020. Unfortunately, that is no longer so and the reason isn’t far-fetched.
However, more recently, the IMF Managing Director, Kristalina Georgieva, in an interview with Al-Jazeera, said “the IMF now expects a recession at least as bad as during the global financial crisis or worse.”
With few cases of the pandemic springing up in China in January, the world assumed the problem would be confined to China and the aftermath probably handled, if any at all. Sooner than later, it became obvious that COVID-19 is not just restricted to China, but spreading to the world at large. Drastic measures taken by countries to safeguard their populace, which include closure of borders and suspension of trade between countries, movement restriction, enforcement of social distancing and closure of factories, seriously affected economic activities, and pushing the world to recession.
Earlier analysis of the economic situation showed that financial analysts expected that the current economic trajectory would mirror that of Severe Acute Respiratory Syndrome epidemic in 2003, which declined as rapidly as it recovered from the effect of the outbreak.
This situation is clearly different in this case, as the epidemic has recorded more deaths than SARS. Even more alarming is the economic effect. The initial assurance has transformed to anxiety, with each country grappling with the horrendous spread of the virus and the certainty that it will impact negatively on the global economy.
Finance personnel, investors, importers and exporters, retailers and wholesalers are at the receiving end of this global crisis. Markets are losing confidence, as uncertainty grip the minds of these businesspersons. In that interview, Georgieva said, “The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”
Speaking on how COVID-19 will affect the economy, Olayinka Olubajo, a finance guru told Financial Street that the economy would, with certainty, be hit hard due to the closure of companies.
“For organisations, which require the physical presence of their staff for the production of goods and services, the lockdown – imposed as a means of curbing the spread of the virus – would translate to significant losses. In a bid to minimise the losses, companies may be forced to lay off some section of their staff. Consequently, unemployed people (and even their employed counterparts) could cut down on spending. As a result, there is a reduction in consumption. This and reduced investments would negatively impact the economy,” Olubajo said.
Considering the economic implications and result of actions taken, there is a higher probability that the world’s economy will recede.
According to Olubajo, it is already a fact that the world is in recession.
“IMF has already stated that the world is in recession. Unemployment rate in both the United States and Canada have already spiked according to records, while a lot of businesses are struggling to remain relevant,” he stated.
Recovery from effect of pandemic
There have been negative projections as regards the aftermath of the pandemic on global economy. Barely three months into the pandemic, the IMF has already confirmed that there is already recession engulfing the world. This is not just affecting the major developed economies; the other economies are also feeling the pangs, in the face of the pandemic. Several reports have revealed that the faster the virus is curtailed, the easier it will be for the global economy to bounce back.
“Based on historical standards (the 1918 Spanish Flu, which killed 40m people, the two world wars, the Great Depression and even the 2007 to 2009 financial crises), the global economy has always recovered from significant setbacks and this period is unlikely to be different,” said Olubajo.
He sees the likelihood of economic rebound swifter than usual.
“Governments across the globe have already launched unprecedented stimulus packages to support the economy. In the case of the U.S., government recently announced a $2.2tr package to support businesses and individuals, while its monetary authority, U.S. Federal Reserve, has both cut interest rate to zero per cent and granted unlimited funding to specific sectors of the economy.