Economic Recovery from COVID-19 and Geopolitical Ramifications
The COVID-19 Pandemic will impact the global economy on a large scale. Now the question has become, how to recover the global economy swiftly? We all agree that Ways means must be figured out to prevent an enormous collapse in demand. Such a risk is increasing because the majority of businesses are directly impacted by the very measures imposed to prevent the spread of the virus.
At the moment, every city and country are locked down and people have been requested to stay home and maintain social distance. As we have seen that a lot of concerts, Olympic 2020, and meetings have been postponed for an indefinite time, while restaurants, café, and venues where individuals gather to have fun themselves are mostly empty. Airlines are grounded and hotels are largely vacant.
Customer expenditure has crashed because everyone is either too scare and not capable to go out and spend. As an outcome, all businesses that entail close connection with the people are in peril. Their revenues are getting down rapidly than they can cut costs, and many businesses could be bankrupt if the situation cannot be handled well. As per Forbes, under these situations, dangerous results are mass business closures leading to increasing unemployment,generating a self-reinforcing response loop that blockssalary-starved households and revenue-starved organizations into adescending spiral.
The Forbes Asian Panel of Economic commentators have shared their insights on COVID-19’s global economic impacts, and have described how different reasons may bring back at a different speed in the near term. They also have looked depth at how the Chinese economy is recovering. Forbes’s economic commentators have shown the difficulty of 2nd order impact increasing from mass business failure and spiking. Unemployment, how it is going to be mitigated.
Global Recession Now A Certainty
Seeing in such kind of situation, it appears that the US and Europe will be in locked down for the next one or two months minimum. Customer’s expenditure is going to plunge, businesses can’t just defer hiring and capital spending but also lay-off employees. The promised fiscal stimulus including direct cash transfers to people could help, but it isn’t sufficient. According to Central Asian Advisors Manu Baskaran (form Forbes), there are two subcontinents first Europe and the other US will grow very weakly in the first quarter, but in the 2nd quarter, they will contract severely.
After July, their growth could stabilize and then return on track. It estimates that China’s economy size decreased at an extreme pace in the first quarter compared with a year ago. But it should show a strong rebound in the 2nd quarter and start providing limited support to the global economy. It estimates that overall East Asia is going to show a similar pattern of recovery. Southeast could be behind East Asia.
Let’s talk about serious downside risk, it believes that Coronavirus’s economic impact will make worse existing financial imbalance like a massive corporate debt which has grown up in the last few years. An unexpected and sudden crisis like Coronavirus can tip these imbalances over into financial disaster. According to Forbes, many Insurance companies are selling down assets badly to raise cash.
If business closures grow swiftly and abruptly stop in travel and tourism, existing financial fragility will explode. If this situation out of hand, the global economy can be worse. Which is why governments are now responding on a massive scale. Here I would say governments whatever has announced so far is just the initial step.
Effective Policy response must focus on supporting businesses
Central bankers and governments are scrambling to do anything to make a strong economy. Many of them are adopting the same unfocused fiscal spending and cheap money policy response which has created trouble for a decade. According to economist Jim Walker (from Forbes), it didn’t work in the past and not going to work now.
The right government policy response would be, focus on helping the csectors, give big priority on small businesses, that have faced issues from supply interruption firstly, and then weakening demand as contraries have closed their borders and movement of people have been constraint severely. When businesses fail, jobs get lost, and customer demand which was only deferred earlier gets pulled down for a long time.
Now you must have a question that what is right polices, well here Jim Walker has described that government can give relives the businesses by cutting corporate taxes including rates, rents, and license fees; delay the corporate tax for a year, helping banking sectors which refrain on interest payment in the businesses and other measures so that businesses could slowly start making progress. I would say it depend upon governments how, where, when they are spending.
China Getting Back to work and to consume
Indeed, China does seem to be slowly returning to work after weeks of lockdown due to the Coronavirus. Although, as per foreignpolicy.com, the streets of major cities won’t anywhere near as crowded as before. Simon Ogus (Forbes) has talked to many companies and only had perhaps 20% of their workforce back on the job in mid-Feb, during the time, the share was around 50% by end of the month, and had raised around 70 to 80 percent toward in the middle of March.
Those Attempting to find solace might note that compared to the COVID-19 outbreaks, services now comprise 55% of GDP, up from 40% in 2003 according to Forbes. The counter is that in USD terms, nominal GDP is up eight times over the same time.
According to ThitinanPorgsudhirak from Forbes, lately, the capital city of Wuhan in Hubei province (located next to china) has zero cases of new COVID-19, Cambodia, Thailand and Myanmar are geographically on the frontlines as it were, more exposed than most, by travel and trade, to the quickly spreading contagion. But I’m surprised that because they have reported very few cases of infection and a strangely.
Now you may say that why? Well, as you know that Cambodia, Myanmar and Laos all share borders with chain, and over the past years, they built up dense trade and investment ties with Chinese nationals, it means you can frequently visit by air or road, it is hard to believe that SARS isn’t spared in these poorer countries.
The coronavirus has taken on longer-term geopolitical ramifications. It has become politicized and polarized because it’s come from Asia’s superpower country China which is aggressive and ascendant in pursuit of worldwide supremacy.
