Coronavirus Has Brought The Global Economy To A Standstill
The recent outbreak of coronavirus (COVID-19) is no longer under wraps. After originating in China, the virus has spread globally claiming thousands of lives. China has been in lockdown since the latter part of 2019 and more countries are following suit.
Well-known economists are saying that this outbreak has led to a major dislocation in the global market, which further impacted the economy to a large extent.
The beginning of 2020 saw stock market crashes, fluctuating exchange rates, and a rather stagnant global business environment. Although, like all other crises, the economy is forecast to return to normal sooner or later, the immediate financial instability and market volatility are nevertheless concerning.
Kristalina Georgieva, the Managing Director of International Monetary Fund recently said that this pandemic is the world’s “most-pressing uncertainty”.
Economic shocks arising from the outbreak and growing instability are clearly reflected in the lowered forecasts and increased stock market volatility. Significant epidemics have been recorded in America after severely impacting South Korea, Italy, and Iran.
Recessions in the US, EU, and Japan, China's lowest reported inflation, and overall loss of $2.7 trillion in potential output are just some economic knock-on effects that leading economists foresee as the virus spreads continuously and a potent solution is yet to be found. Other major economies with virus cases like Korea, the US, Germany, France, Italy, and others have taken a hit as well. As per Bloomberg, these factors have reduced the global growth forecast for 2020 to a meagre 2.3%.
China has already taken a significant economic hit alongside declining projected production for 2020. As more governments implement lockdowns and prohibit all sorts of mass gatherings and public events, the job-market has frozen. Even though US unemployment rates are hovering near all-time loans, that landscape is quickly reversing.
This is especially concerning as loan and card installments pile up and the debt-to-income ratio increases at an alarming rate.
What Can Governments Do?
Politicians and central banks must take urgent measures to tackle the economic consequences of the epidemic. In the US, the Federal Reserve has cut the interest rates aggressively, however, they have to put in additional measures to revive the crumbling economic outlook.
At least part of the outbreak is a supply scare— it led to businesses, factories, and offices shutting down, thus forcing workers to stay at home. It's not something that lawmakers can do a lot about beyond measures designed to contain the spread of coronavirus itself. However, by cutting the costs of living, adding stimulus, and implementing payroll tax cuts, policymakers could help push volatile capital markets towards a more normal state until the current turmoil subsides.
The coronavirus effect can conflict with supply chains and external demand. Accordingly, this will affect the economies of most countries, and the current global situation poses a significant risk of instability over the longer term if coronavirus is not contained.
That said, targeted relief to the heavily impacted economic sectors and swift action to steer clear of disruptions that can impact the economy are absolutely the need of the hour.