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The economic cost of COVID19 is bigger than the great depression
The COVID-19 pandemic, that infected nearly 2.4 million people and caused the death of 170,000 people as of on 21 April 2020, has brought about an economic disaster at the global level. The International Monetary Fund (IMF) expects the world economy to shrink by 3 per cent this year. The economic growth of the Asian region is also likely to plummet to zero this year, which is the lowest one in the last 60 years. Even the Great Depression of the 1930s had not created as much havoc as the present COVID-19. Whereas the Great Depression mostly had an impact on Europe and the USA, COVID-19 has hardly spared any country of the world.
Kristalina Georgieva of the IMF has warned that global economic growth will turn negative in 2020. Earlier in January this year, the IMF had projected global growth of 3.3 percent for this year and 3.4 percent in 2021. Even the world’s some of the advanced economies are projected to encounter economic downturn of unprecedented scale. The US’s growth is projected to be negative to -5.9 percent; while it is -5.2 percent for Japan. Germany’s growth would be -7.0 per cent and it will be -7.2 percent for France, -9.1 percent for Italy and -8.0 percent for Spain and -5.5 per cent for Russia. In Latin America, the economic growth is likely to slow down to -5.2 per cent. The economy of Brazil will be -5.3 percent; while or Mexico it will be -6.6 percent.
Furthermore, in West Asia as well as the Central Asia, the economic growth rate will plummet to -2.8 percent. Even in Saudi Arabia, the economic growth rate will contract to -2.3 percent. In Sub-Sarahan Africa, the economic growth will decline to -1.6 percent. In Nigeria, the economic growth is likely to be -3.4 percent. Similarly, in South Africa, it is likely to contract to -5.8 percent. The UK economy is likely to decelerate to 35 percent with job losses of 2 million people.
The economic growth of South Asia is likely to fall to 1.8 and 2.8 percent in 2020, which earlier was forecasted to remain closer to 6 percent. Supply chains in the region are disrupted. Tourism is in shambles. Inflows of remittances are disrupted. Industries are the most affected. Investment sentiments have almost dried. Inequality of income and resources in this region has impacted the poor people most as they are more infected with COVID-19 as compared to other classes of people. Conditions are such that it is most difficult for poor people to implement social distancing. Access to health facilities, including the soap, is inadequate for them. They are also the unfortunate lots who suffer most due to the job loss and at the same time get affected by the soaring price of essentials.
India as that of China are also affected most by COVID-19, but the economic impact of this epidemic in these fastest-growing economies will not be as precarious as many other countries. Economic growth in India is projected as 1.9 per cent this year, which is the worst growth performance since 1991. For China, economic growth is projected at 1.2 per cent.
Estimates are that many of the airlines in different countries will go bankrupt by the end of May. ILO has estimated that 81 percent of the global workforce of 3.3 billion are directly or indirectly affected by workplace closures. In India itself where almost 90 per cent of the people are working in the informal sector, nearly 400 million workers are likely to fall deeper into poverty.
Because of the lockdown imposed in Nepal, the World Bank has projected Nepal’s economic growth to decelerate to 1.5 and 2.8 percent from 6 percent in the previous three years. COVID-19 has already cost the nation more than Rs. 100 billion. In the dairy sector alone, there was a loss of Rs. 2 billion during the first 20 days of lockdown. The lockdown is expected to cause the loss of Rs. 50 billion and the job loss of 175,000 people in the aviation industry.
In the meantime, the United Arab Emirates (UAE) has threatened to suspend bilateral labour agreements with countries that refuse to repatriate workers to take them back to their home. There are 275,000 Nepali workers in the UAE. Even if a part of them are laid off or their work visas are expired, Nepal does not seem to be prepared to take them back to home through flights and to put them in quarantine. To improve the economic condition, the US has approved over $2 trillion as of the stimulus package. The housing market in this country could cause a loss of $1.34 trillion of its value. Canada made $75 billion COVID-19 relief bill as a stimulus package. Similarly, India announced a bailout package of $22 billion for the poor.
The mounting human toll along with the global economic tsunami caused by COVID-19 is challenging. In this hour of crisis, the global community together with the South Asian countries, including Nepal and India, need to chalk out an action plan for addressing the health emergency effectively to save the life of the people, especially those who are helpless and most vulnerable. The government, private sector and international development agencies need to act in a way that the medicines, health supplies and other related equipment are in place. Also, they need to come out with a recovery package to take resort to expansionary fiscal policies and monetary stimulus to give a new lease of life to the economies.
Hari Bansh JHA (ORF)
12 May 2020