Covid-19 undoubtedly brought about catastrophic human miseries around the world. But its economic fallout is even more mind-boggling and distressing. The economic ambiguity the pandemic has triggered will set back the world’s economy by about $1trillion in 2020.
On March 30, the United Nations Conference on Trade and Development (Unctad) published a report that noted a “…slowdown in the global economy to under 2 percent for this year, and that will probably cost in the order of $1 trillion, compared to what people were forecasting back in September.”
We are now witnessing how the world financial markets are tumbling over concerns about supply-chain interruptions from China, and oil price uncertainty among major producers. Richard Kozul-Wright, director of the Unctad Division on Globalization and Development Strategies, warns that “few countries were likely to be left unscathed by the outbreak’s financial ramifications.”
He says: “One doomsday scenario in which the world economy grew at only 0.5 percent, would involve a $2 trillion hit to gross domestic product,” adding that “collapsing oil prices has been a contributing factor to that growing sense of unease and panic.”
On Friday, International Monetary Fund (IMF) Managing Director Kristalina Georgieva relayed another piece of bad news for the economy: “The global economy is now in a recession—a period of economic decline where output falls for two successive quarters—that could be as bad or worse than the 2009 downturn.”
She said: “Countries needed to boost spending as a safeguard against bankruptcies and possible market debt defaults. This is a very big crisis and it’s not going to be sorted out without a very massive deployment of resources.”
Panic seems to be too light a word to describe what many people are feeling, given Covid-19’s monetary complications. On Saturday, or two days before the Unctad report, Thomas Schaefer, Finance Minister of Germany’s Hesse State, was found dead on railway tracks at Hochheim, near Frankfurt. The Wiesbaden prosecution’s office said 54-year-old Schaefer apparently committed suicide. According to State Premier Volker Bouffier, Schaefer was suspected of having been “deeply worried” over how to cope with the economic fallout from Covid-19.
Personally, what I find most disturbing is the confluence of recent economic events that make for a perfect economic storm. The world is now virtually at a standstill. While many people can buy essential goods that some businesses are still able to provide, economic managers around the world fear that the pandemic will last longer than initially expected.
What is happening is that more companies are closing down or trimming their work force since their manpower has to be shielded from the virus. The result: disruptions in the supply chain. This is compounded by the decrease in demand. People are in quarantine, and many of the goods and services they have been accustomed to getting easily pre-Covid-19 are fast dwindling. We are in a situation where countries are closing their borders and shutting off air traffic. The world is now effectively frozen. No supply and no demand are a perfect combination for economic stagnation. The economy must keep moving, but it is the speed with which health experts can contain or stop the virus that will dictate when the wheels of commerce will again roll to capacity.
The urgent desire for governments to open up immediately is understandable. A new battle has begun between public health and commerce. Health experts are saying that it is important to flatten the curve first, but even that seems remote at the moment.
As of March 30, US-based John Hopkins University Global placed at over 35,000 the global death toll from Covid-19, which emerged in Wuhan, China in December 2019, and spread to at least 177 countries and regions. Confirmed cases have risen to 737,929, while 165,655 people have recovered. The trend is still shooting upward with the United States tallying the most number of Covid-19 patients.
“From an economic perspective, the key issue is not just the number of cases of Covid-19, but the level of disruption to economies from containment measures,” Ben May, head of global macro research at Oxford Economics, said in a report this week, adding that, “[w]idespread lockdowns such as those imposed by China have been enacted in some virus hot spots, such measures—if taken disproportionately—could induce panic and weaken the global economy even more.”
Here at home, Bangko Sentral Governor Benjamin E. Diokno on Sunday predicted that the Philippine economy could go into recession this year. “We’re looking at negative to maybe 1 percent [growth] given this development,” he said.
The country now has 2,084 coronavirus cases, with the Department of Health reporting 538 new cases on Tuesday, the biggest single-day increase so far. The DOH also confirmed that 10 more patients have died, raising the death toll in the country to 88.
But more than the economic cost, I believe that we shouldn’t lose focus on Covid-19’s human toll, because such could lead to societal breakdown. The disease has spawned joblessness, hopelessness and has orphaned a lot of people. Those who have been stripped of material possessions could easily turn against those who have been spared. I can just picture countless souls emerging from the current crisis with no cash, no jobs, and no access to medical nurturing. It is not hard to imagine the desolation and anger that these people could be feeling. If our government resorts to using military forces to crush (God forbid!) riots or attacks on property, social order may collapse.
Our leaders must then strike a perfect balance between commerce and health. Are we ready to open up—completely or partially—people movements and economic activities on April 15, or do we need more time? If the pandemic lingers, how long will it take for the situation to somehow “normalize”?
In my opinion, the government’s main purpose is to deter social collapse. They shouldn’t be blinded by the glare of the treasures of financial markets. It has to strive to keep social linkages resilient under these unexpected, abnormal, and arduous times.
For comments and suggestions, e-mail me at mvala.v@gmail.com