Is the global economy headed for recession?-THE HINDU-15-03-2020
A diverse set of industries has been impacted by the spread of the virus. With daily news reports painting a dismal picture of supply chains affected, it is easy to visualise the global economy virtually grinding to a halt.
What does it mean to the global economy?
Analysts fear that the global economy may tip into a recession unless the virus turns out to be seasonal. Rabobank has been cited in the media as saying that a global recession now is all but certain. It has predicted global GDP growth to be 1.6% for 2020, a figure that was 2.9% the last year, as per IMF estimates. Economists from Nomura have warned that a global recession might be inevitable.
This year, in early March, the Institute for International Finance had said that global economic growth could turn out to be as low as 1%, and this was even before the OPEC club and Russia fell out on production agreements to maintain stable oil prices. The UN’s United Nations Conference on Trade and Development , said the virus outbreak could cost the global economy up to $2-trillion this year and that the pandemic could cause a recession in some countries causing global economic growth to clock in below 2.5%.
Why should the economy be affected?
Businesses face the challenge of disrupted supply of components to make products, or of having to shut some of their factories temporarily, not to mention large swathes of the workforce having to be quarantined.
Which are the industries impacted?
There is no industry that has experienced the impact. When China, with the disease’s epicentre in Wuhan, was brought to its knees, the Indian pharmaceutical, automobile and mobile phone industries, for example, immediately wobbled. India depends on China for supplies of components for products that these sectors make. The Indian pharma industry, which depends on China for 70% of raw materials needed to manufacture drugs here, has seen input costs go up by 50% as of February this year.
The pesticides sector is another that has been affected as manufacturers depend on China for raw materials. While there are comforting stock levels for now in India, farmers may soon face pesticide availability issues unless the situation resolves quickly. Even the software services industry, which so easily lends itself to working from remote locations, can only progress so far. declaring emergency.
Federal Reserve held an emergency meeting and cut interest rates by a half percentage point. The stock markets reacted favourably for a short while before losing steam and spiralling downwards. On Thursday, the Euro markets remained unmoved even after the European Central Bank announced fresh stimulus measures to help the economy cope with the growing cost of the COVID-19 epidemic. declaring a state of emergency over the spread of the virus will help allocate the significant quantum of funds needed to deal with a health-care requirement of this magnitude.
How will it hit the travel sector?
At an aviation event in Hyderabad the past week, Boeing executives gave rough estimates indicating there had been a 50% reduction in daily flight count in the Asia-Pacific region. In normal times, mainland China would see 15,000 departures a day and at the peak of the virus the country was operating 3,000 flights a day. As the virus spreads to other markets, airlines in Europe and the U. Take the example of shared mobility in India. Anecdotal evidence tells us that at steady state, cab drivers cannot quite afford to have their cabs out of circulation for even as short a period as a week, if they have to put food on the table for their families.
Wouldn’t entertainment and sports offer a reprieve?
The very popular Indian Premier League has been postponed. The South Africa-India cricket series has been cancelled. In football, all Union of European Football Association competitions, including the Champions League and Europa League matches, have been postponed. basketball association, the National Basketball Association suspended its season’s events indefinitely while the body that conducts college championships for the sport, the National Collegiate Athletic Association , has cancelled both its men’s and women’s upcoming events.