The new type of coronavirus- COVID-19, started from China but now threatening the whole world by spreading rapidly as well as continuously to take life. China was mentioned about this disease on 31st December 2019, which was found out from Wuhan City, Hubei Province of China. After that World Health Organization (WHO) 11th March 2020 declared that COVID-19 was a pandemic. The virus, which has been ensured that more than 379 044 (confirmed deaths) people have been passed away, while confirmed cases are about 6, 272, 098 million people and its spreading at least 216 countries and regions. More than one million people have recovered to date (WHO, Update on June 3, 2020).
The coronavirus outbreak that hits global economies seems to shake political and economic balances in many countries. The pandemic, which postpones international travel and stops production wheels, causes shock waves in the markets. It’s a fatal health problem, which caused a significant economic breakdown, shook the global financial system gravely. In addition to supply and demand shocks, there is a high fluctuation in the financial markets. If we just imagine economic life, especially in the USA and Europe, it stopped because it affected the supply and demand fronts simultaneously. Since the Second World War, the world has been facing the worst economic recession, and there has never been a time when all these imbalances were experienced so harshly at the same time. Unfortunately, this dangerous scenario has become a reality.
Global Economic Growth Forecast
In this process, where the global system will be reshaped, global economic growth projections of international organizations have been turned upside down. The International Monetary Fund (IMF) lowered the 2020 global growth forecast with the effect of Covid-19. In the IMF’s Global Economic Outlook, it is estimated that the global economy, which is expected to grow by 3.3 percent, will contract by 3 percent this year. The global economic growth forecast for the next year increased from 3.4 to 5.8. According to the IMF’s report, the US economy will shrink 5.9 percent this year and the Eurozone 7.5 percent. Germany, which is one of the leading economies of Europe, is expected to shrink by 7 percent, and Italy, which is most affected by the outbreak, is 9.1 percent this year. The British economy was reported to shrink 6.5 percent this year. The growth forecast for emerging economies decreased from 4.4 percent to minus 1 in 2020. Stating that there is great uncertainty regarding global growth forecasts, the report said, “Many countries face a multi-layered crisis, which is caused by health shock, domestic economic disruptions, falling foreign demand, reversal of capital flow and the collapse of commodity prices (IMF World Economic Outlook, April 2020?.
While the impact of coronavirus is increasing in around the world at the same time economic impact is increasing. Let’s take a focus in economic scenario, most of the effect is not from the virus itself, but from the measures taken to prevent it from spreading. For examples; most of the country taken to prevent Quarantine system, encouraging people to keep away from themselves, closing schools, colleges and universities and strict restrictions on international travel as well as business travel. Additionally, they restrict the movement of workers, goods and consumers. Due to the epidemic, most of the countries closing their restaurants, cinemas, transportation services, hotels, shops and industries. For this reason, peoples try to work from home.
The global epidemic we are experiencing is not the first global epidemic in the world history. In addition to many regional epidemics in the world history, many global or transcontinental epidemics have also occurred. Two of are prominent, one was Plague epidemics, also called “Black Death”, are among the deadliest outbreaks in human history. One of the largest of the plague outbreaks was the Black Plague Outbreak, estimated to have killed 75 to 100 million people. The plague epidemic, which caused great destruction in Europe between 1347 and 1351, started in the south west of Asia and reached Europe in the late 1340s. Another was influenza pandemic or Spanish Flu that started in March 1918 and continued the summer of 1919. The World Bank estimates that a global influenza pandemic would cost the world economy $800 billion and kill tens-of-millions of people. The U.S. Department of Health and Human Services paints a direr picture-up to 1.9 million dead in the United States and initial economic costs near $200 billion. Spanish Flu have had significant impact in economic consequences alongside loss of lives. Of these two global plague epidemics had deeply impact in global economic scenario. Nowadays, COVID -19 brought to mind the epidemic diseases that caused great deaths in the world history.
When the COVID-19 crisis is over, the world will have changed. Although this change is not radical, it will be an important one. Despite these unknowns, it is evident that the COVID-19 outbreak will cause significant changes in the global economy. It is necessary to underline a few issues before analyzing what changes the global economy might have in the medium and long term under different topics. Although it is not easy to make comparisons, historical experiences will also be taken into account in order to see what kind of breakdowns of the global economy has been experienced after the big shocks encountered in the past.Therefore, it is inevitable that some points in the analysis are speculative (Islam, 2019 and Islam and Israel, 2020).
Global Supply Chains and Protectionist Economic Policies
This pandemic showed us that excessive dependence on East Asia in manufacturing industry production poses a severe risk for global supply chains. Multinational companies will review their investment strategies from now on.
Multinational companies can move part of their production facilities from China to other regions. In the manufacturing industry, other developing countries with a wide range of production, high human capital levels, and logistic advantages can be added more tightly to global supply chains by attracting more foreign direct capital in the long run. However, as a reflection of the rising anti-globalization and anti-globalization in developed Western countries, some multinational companies of American and European origin may choose to shift their factories to their own countries. In order to make such large-scale production transfer possible and sustainable towards developed countries in terms of costs, the weight of blue-collar workers in factories will have to be reduced.
In such periods, countries switch from liberal policies to protectionist policies. The first steps were already taken with the trade wars that have been going on for a while. With the virus crisis, this process can accelerate, and the scope of protectionism can expand. Both developed and developing countries can introduce various regulatory mechanisms to keep capital and investments inside.
Management of the Company
During the Covid-19 outbreak, many companies had the opportunity to experience different methods of working remotely. After the pandemic, we will see that working remotely has become more widely used, especially in the services sector. This experience can pave the way for large companies, especially in some departments, to purchase more services from the outside. The supply shock from the virus caught some critical sectors off guard.
Globalization of Social Dimensions
Globalization can be damaged not only in terms of production and trade but also in social dimensions. Possibilities such as people’s less preferring abroad holidays, decreasing participation in international fairs and conferences, and increasing foreign opposition may cause serious damage to the tourism sector. In the event of such a scenario, the sharing of knowledge and experience between countries and peoples may also decrease to some extent.
Impact on Health Expenditures
With the 1980s, Neo-liberal policies, which had an impact on almost every aspect of life, caused a significant reduction of the public in the health system in many countries. Private health insurance tried to fill the remaining gap in healthcare services, where the public was left behind in developed Western countries. However, there are serious shortcomings here, as well. For example, 27.5 million people in the USA do not have health insurance. In Europe, public support for health spending decreased with the austerity policies that came into effect after the global financial crisis. As a result, the health system of some Western countries could not handle this crisis. If we consider the criticism and pressures coming from the public after this stage, it will not be a surprise that the health system reform in many countries is on the agenda again quickly.
The Burden of Economic Packages on Public Finances
The total amount of support packages introduced to keep the effects of the Covid-19 crisis on the economy at minimum levels reached 7 trillion dollars. Until the pandemic is brought under control and economic activity returns to normal, the burden of these financial packages on public finances will not be a problem. However, it will be discussed after a certain period of time on how to finance the increased budget deficits and control the public debt expected to increase. Countries can prepare reforms in tax systems to close budget deficits. In order to increase tax revenues, wealth taxes for ultra-rich segments, or additional taxes that can be levied on sectors that make excessive profits during the virus crisis, may enter the radar of finance. On the other hand, as the global debt stock, which has already exceeded $250 trillion, will increase more with the new public debt, demands for deletion of certain debts will arise. Tax reforms can bring tough power struggles in the domestic politics of countries and debt relief plans internationally.
Despite the dizzying technological developments and innovations, this pandemic reveals how incapable human beings are in some of the issues that seem simple. It will be further questioned how technology-oriented companies’, R&D spending, and the patents they receive have had a positive impact on key components of economic development, such as human health and productivity growth. People around the world spend their money, employee’s human capital, and companies R&D investments, mostly in areas of low efficiency and benefit. We will have to change our perspective on innovation, especially to solve significant problems such as global climate change.
V, U, W or L: The 4 Possible Scenarios for Economic Recovery After the COVID-19 Pandemic
Economists analyses that the current scenario of COVID-19 and predicts possible four (4) economic recoveries-
V-shaped would mean, when confinement ends and a quick return to economic normality. This option is possible, but it is difficult to produce it because, as we have mentioned, we will not return to the same economic scenario as before the pandemic. Security measures, limited capacity, closed borders and fear of contagion play against this option. Dhara Ranasinghe, Ritvik Carvalho (2020) explained that V-shaped is the best outcome. Similarly, a rapid rebound is accompanied by a collapse in production. “The April-June GDP contraction will likely be on a scale not seen for decades. But fiscal and monetary stimulus – over $10 trillion and counting – could aid an equally swift rebound.”
Ross Walker, NatWest Markets’ co-head of global economics, estimates the economic decline expected in this quarter “a sizeable rebound in Q3 and Q4 as businesses re-open”.
Graph 1:”V”- Shaped Recovery
Source: Carvalho, (2020), Designed by Reuters
U-shaped, this option means that it will take longer to return to economic normality. This form of recovery seems more in line with the situation that we will find after confinement since the opening will be progressive and the situation will be different from before the coronavirus appeared.
Ranashighe and Carvalho (2020) argued that “economies have experienced a recession faster and deeper than in 2008-09. In the view of this situation they pridicted That could be the most likely outcome.”
Although almost all the organisms agree that the U-shaped recovery is the most likely, some warn of a more adverse scenario.
U is the base case for ING’s Brzeski, who notes the lockdowns’ impact will last for a while after they are lifted.
“Easing of the lockdown measures will be gradual, social distancing will continue and the tourist industry will likely continue to suffer,” Brzeski said.
Graph 2: “U”- Shaped Recovery
Source: Carvalho, (2020), Designed by Reuters
W-shaped or Double-dip this means that, after a slight recovery, there would be a fall again and then the final economic recovery. This option is consistent with the appearance of a flare-up or the disappearance of the initial effect of the monetary and fiscal measures put in place to combat the coronavirus.
According to Ranasinghe and Carvalho (2020) if the easing of lockdown restrictions initially boosts activity but the effects of unemployment and corporate bankruptcies then start to filter through.
Graph 3: “W”- Shape, or “Double-Dip” Recovery
Source: Carvalho, (2020), Designed by Reuters
L-shaped, this is the worst option we would face. It would mean that we would go through a great crisis that would take a long time to recover. This is the bleakest economic scenario and would imply strong economic and social changes, which always happens when large economic collapses occur.
Accordingly,Ranasinghe and Carvalho (2020) explained there study “L-shaped outcomes may be a risk for those emerging markets less able to engage big stimulus and often rely on commodity exports.”
Graph 4: “L”- Shaped Recovery
Source: Carvalho, (2020), Designed by Reuters
As it can be argued that “recovering normality” is a relative term, which is impossible for us to return to the pre-pandemic situation without a vaccine or widespread immunity. Once confinement ends, the return to economic normality will be gradual. Everything between great hygiene and safety measures, avoiding crowds and checking contagions week after week avoid a re-growth. These measures are going to be a great challenge for many businesses, with limited capacity in restaurants and bars, concerts, museums, universities, schools, etc., with their respective impact on business results.
Finally, various studies show that the loss of biodiversity and destruction of ecosystems is related to the increase in the transmission of infectious diseases. In recent years we are experiencing the proliferation of diseases such as COVID-19, MERS, Ebola or SARS, which appear recurrently. In short, as soon as we overcome this crisis, we must learn and work both in the prevention of this type of disease and in sustainable economic development before it is too late.
Lutfun Nahar is a Türkiye Burslari Research Fellow, Department of Economics, Major in Islamic Economics and Finance, Sakarya University, Sakarya, Turkey and Md. Naimul Islam Farhan is studying at the Department of Development Economics, Dhaka School of Economics, University of Dhaka