Impact of Covid-19 on Global Economy | 03 Apr 2020

Why in News

Recently, the United Nations Conference on Trade and Development (UNCTAD) has observed that the economic uncertainty sparked by the Covid-19 will likely cost the global economy $1 trillion in 2020.

• The observation is based on the World Economic Situation and Prospects 2020 released by UNCTAD.

Key Observations

• A slowdown in the global economy to under 2% for this year is envisaged which will probably cost in the order of $1 trillion.
  
  • Worst possible scenario: If the world economy grew at only 0.5% which would involve a $2 trillion hit to gross domestic product (GDP).
  • Best case scenario: With moderate declines in private consumption, investment and exports and offsetting increases in government spending, global growth would fall to 1.2% in 2020.
• Global financial market is fluctuating due to the supply-chain interruptions from China and oil price uncertainty among major producers.
• European economies had already been performing extremely badly towards the end of 2019.
  
  • Europe is almost certain to go into recession over the coming months.
  • German economy is in a fragile state.
  • Italian economy and other parts of the European periphery are also facing very serious stresses right now.
• Many parts of the Latin American region are also vulnerable.
  
  • Argentina in particular will be struggling as a consequence of the knock-on effects of this pandemic.
• The least developed countries whose economies are driven by the sale of raw materials will also face hard consequences.
• Heavily-indebted developing countries, particularly commodity exporters, face a particular threat due to the weaker export returns linked to a stronger US dollar.
  
  • The likelihood of a stronger dollar as investors seek safe-havens for their money and the almost certain rise in commodity prices as the global economy slows down, means that commodity exporters are particularly vulnerable.

Suggestions

• A series of dedicated policy responses and institutional reforms are needed to prevent a localized health scare from turning into a global economic meltdown.
• Governments need to spend now in order to prevent more damaging meltdown in the coming times.
  
  • Chinese Government is likely to introduce significant expansionary measures – shorthand for increasing spending or tax cuts.
  • The US government is in an election year and it needs to do more than simply cutting taxes and reducing interest rates.

Source: UN