Impacts of Covid19 on global economy

Many economists see Covid-19 as a threat not only to public health but also to the global economy. As of now, it has severely affected developed countries in Europe and North America, as well as major economies in Asia, including China, Japan, and India, along with many middle and lower-income countries. This has resulted in reduced income on both the supply side (due to reduced production) and the demand side (due to decreased consumer demand). In the short term, the health sector requires more resources, and as people reduce social activities, countries are investing less in physical infrastructure. This slowdown is coupled with a decline in the manufacturing and retail sectors. In the long run, these effects can lead to a loss of human capital and the deterioration of infrastructure. Parallels are being drawn between the current crisis and the global recession of 2008-09. However, during the present crisis, the stock market has lost approximately 30% of its value in just 18 days, which is unprecedented. If the pandemic is not controlled by the end of summer, the scenario could be worse than the recession of 2008 and comparable only to the Great Depression of 1929. According to Bloomberg (based on the most conservative estimates), the worldwide estimated lost output is $2.7 trillion. The Chinese economy has never contracted since opening up to the world in 1978. With China apparently containing the disease, its growth may remain positive and have a positive impact on the world economy. However, the US and Europe are expected to contract, and with the current rate of growth in the number of cases, India's growth rate could be halved. The IMF has proposed several options for policymakers, including: 1. Containing the pandemic. 2. Providing financial stimulus: The US is considering a stimulus package equivalent to 3.75 to 5% of GDP. In our case, due to financial constraints, this is challenging. Even during the 2008-09 crisis, India provided a stimulus of 2% of GDP, but back then, the rupee was very strong, which is not the case at present. This poses limitations on quantitative easing. 3. Strengthening the safety net: The most vulnerable households are the ones most likely to be economically affected. The reduction in cash flow will significantly impact micro, small, and medium-sized enterprises (MSMEs). There will be a substantial number of job losses, particularly affecting the urban poor who are mostly daily wage earners. 4. The only silver lining is that in the long run, India could benefit in sectors such as textiles and manufacturing if it can contain the spread of the disease early, resulting in reduced human and economic costs.