The new pandemic COVID-19 has almost grasped our lifestyles while leading to economic recession in deep. We are going to face a prolonged recession, perhaps greater, longer and bitter than the great depression of 1929 which lasted for 10 years and eventually led to fascist ideological uprising in the west. But economists hardly could predict the magnitude of the economic collapses.
Fearing the fact that if it would surpass the Great Depression of 1929, experts as far now predicting the recession downturn would continue for two or more consecutive quarters as of global lockdowns, shuttering down of mills and factories and necessary social distancing practices which eventually will lead to lower output, higher unemployment. Earlier this year, global school of economists presumed a ‘V’ – shaped curve would be plotted down the economy suggesting a robust recovery when people would snap back to work. But the situation isn’t that optimal since world economy has already faced huge loss and deficit. So, experts are skeptical about the prospect for a ‘U’ -shaped curve which necessarily indicating towards a sustained recession would prevail throughout the year. The IMF warned that the crisis threatened to alter decades of gains from globalization. The IMF gave a hint that the global economy would contract by 3 percent in 2020 while the fund had forecast earlier this year that the world economy would surpass the 2019 and grow by 3.3 percent. This year’s output decrement would be more severe than last recession in 2008 while the economy consolidated by less than 1 percent from 2008 to 2009.
There are many reasons to anticipate that this downturn will be far deeper and longer than that of 2008. Economists eventually assumed this recession turning into a depression likewise 1929 when global economy contracted from 1929 to 1932 was around 10 percent. Growing economies drew back to 16 percent during that period. But there are parallels between now and then as drop in economic activity has been sudden this time and the health crisis has attacked 234 countries and areas of the world as writing of this article. This is also affecting developed and developing nations simultaneously. We’re not only facing demand shocks but also supply shocks. If the pandemic persists into the second half of the year and already it’s evident that it would persist so than the world contraction could be twice as severe and expected come back would be failed to materialize. The IMF forecast that the pandemic could offset global GDP to $9 trillion and the Euro-zone economy will be contracted by 7.5 percent.
Italy and Spain would to face a sharp decline. China’s economy – the second largest economy of the world is anticipated to grow at a slower rate at 1.2 percent down from 6.1 percent last year. Although China’s economy has rebounded partially it is not certain whether it will return to pre COVID-19 levels. Besides, though Chinese manufacturing recover fully which countries are capable of buying those stuffs while rest of the world are suffering from the pandemic? There is large fallout in US and EU stock market. US stock market index has declined to 30 percent. 98 percent flights have been cancelled from US to Asian Pacific Region from 6th of January to 8th of March. Restaurant reservations or walk-in reduced to 80-90 percent. Car sales in China fell around 92 percent within first two weeks of February. Baltic Dry Index – issued by the London based Baltic Exchange which provides a view into the global demand for commodities and raw materials has been reduced to 40 percent in March than past twelve months. There is a larger fall in overall transportations throughout the world. These all are indicating the prognosis of a prolonged recession. Consumer spending amounts reduced almost 2/3rd of economic activity globally. Foreign Direct Investment is to decline by 40 percent this year according to UN conference on Trade and Development. World’s largest economy – US, EU, China are already been threatened to a long-lasting recession. In developing countries the consequences are more acute. Capital fleeing, higher debt, jump in commodity prices – especially oil prices causing it to even more drastic economic damages. Government around the world are striving with the health crisis as well as reviving damaged economy. In order to help developing countries – the UN body sanctioned $2.5 trillion of which the IMF proposed $1 trillion loans, another $1 trillion in debt forgiveness and $500 billion for health recovery. Nations are also taking pecuniary incentives to resolve or survive economic downturns. US called for $2 trillion for financial incentive package which includes 10 percent of US GDP. India has taken incentive of $23 billion and $1 billion consecutively. Bangladesh is likely to take financial measures instead of monetary measures.
The incentive package declared by Bangladesh government in 5th April is 72 thousand 750 crore Taka which consists around 2.5 percent of GDP. But, most important sector in Bangladesh- the agriculture which is a larger employment arena of the country – is not included in this package. This Package is also not sufficient because 4-5 percent of GDP is needed to tackle the crisis. Another $600 million of incentive package has been proposed by the government of Bangladesh; especially for the labors of RMG sector. Migrants and refugees may suffer the most from COVID-19. Remittance earning has a significant impact in Bangladesh economy. Remittance inflows were $1.28 billion, a 12% drop down from the same period last year according to the data of Bangladesh Bank. Though experts can’t precisely predict the end of the recession that is now underway they are presuming that it would take 2 or 3 years to come back to the pre-pandemic output levels. The economists urged the countries to support their health care system and provide the workforce financial security, social stimulants and not to turn to protectionism, so that they may sustain to attend their workplace when lockdown is over. Governments and businesses are in a joint cooperation preventing a hopefully short term recession from turning out to be a great depression. Sooner we can ensure the most effective vaccine is invented or imported, our economy will recover at a great pace. But this is very uncertain. In the absence of a vaccine, the effect of the economic doom can be reduced when a larger portion of population regain immunity after infection. This is known as the famous concept of ‘Herd Community’. We have faced grievous exigency before. There is no other way out except making a constructive plan and executing it successfully to get rid of this unexpected crisis in long run. As for Bangladesh, GDP should not be focused at this moment. Priorities should be given in protecting lives and livelihood of the marginalized people. GDP growth can be taken on later if the labor forces remain safe.
The author is a Post graduate student, Department of Economics, University of Dhaka.