The alarming speed of the spread of COVID-19 has taken the world by surprise and brought global economic activity close to a standstill as governments globally imposed strict restrictions on the movement of people and goods. According to https://www.worldbank.org, the global economy is expected to contract by 5.2% this year, the steepest fall it’s had in many decades despite governments going all out to counter the slowdown with both fiscal and monetary policies. Long-term, the pandemic is expected to leave an enduring impact on the economy due to the fall in investments, erosion of the human capital, and the disruption of trade linkages.
Unprecedented Loss of Per Capita Income
The pandemic is expected to have such a severe effect on the economy that many countries will plunge into recession with the per capita income falling the most it has since 1870. With significant economic recessions in virtually all regions, the pandemic is expected to reverse many years of development and push millions of people into extreme poverty. Developing economies will struggle to manage the virus outbreak and the economic contraction of 2.5% will be their worst performance in the last six decades. These economies as well as emerging markets will face turbulence on many fronts. They may encounter increased pressure on their already weak healthcare infrastructures, loss of trade, reduction in remittances and capital flows, or an overall tight financial condition with mounting debt.
Chances of the Recession Being Worse Than Expected, Observed by Arlington Capital Management
tsWhile there is a belief that the pandemic may pass soon, according to some experts there is also every chance that the pandemic will continue to persist, causing the economic disruption to prolong, leading to a deeper recession than predicted. Possibilities include: businesses may default into debt, the borrowing cost could rise due to increased risk aversion, and financial crises across the world could occur due to defaults and bankruptcies. In a worst-case scenario, there could be a contraction of 8% inglobal growth this year. According to economic analys at Arlington Capital Management, countries with very large informal sectors are likely to suffer massively on economic and humanitarian fronts. It is incumbent on their governments to take innovative measures to deliver both income support to the workforce and credit support to businesses.
There Is Every Likelihood of Enduring Economic Setbacks
The World Bank reports also look beyond the immediate economic outlook towards the possible lingering aftermathof the global recession such as impediments to potential economic output and productivity of labor. As developing and low-income economies struggle to contain the coronavirus pandemic with limited healthcare infrastructure, there is every chance that theymay experience longer and intensified recessions which can negatively impact the already slowing growth in potential output and productivity. The pandemic threatens to worsen the already weak economic situation prevailing in these countries, making it harder for them to overcome their challenge of achieving prosperity.
As grim as the outlook is, the top priority for governments is to address the short-term health issues andeconomic impact. Regarding long-term matters, policymakers and administrators need to implement a comprehensive structural reform program to catalyze economic growth after the pandemic crisis is over.