Global and Indian Economies in 2020
When an infectious disease simply known as Coronavirus was reported in Wuhan, China, little did the denizens of this planet know what would ensue. Later dubbed as Coronavirus disease 2019 or COVID19, it spread chaos and panic around the globe prompting all countries to order partial and total lockdowns. It is a PANDEMIC, declared WHO and all medical experts! The world is yet to recover. Governments, private sectors, services, manufacturing, educational institutions, flight operations—you name it—were all shut down.
Healthcare services went into overdrive to manufacture immunity medications, antivirals, antipyretics, masks, personal protection gear, etc., and the security sector too went into overdrive 24/7. When people get imprisoned in their own homes for months together with a fear-induced, self-imposed, and govt-imposed lockdown, the result is a disaster! Disaster of gargantuan proportions that sent the ordinary people of the world into a tizzy and indulge in totally deranged behaviour against own governments and government machinery. No access to work and no access to money and no access to food and other essentials. A declared curfew during wartime would have been much milder compared to this COVID19-induced lockdown. Almost all countries went into multiple lockdowns, total and partial. No country’s leadership shined through this monumental crisis with some of them getting subjected to ridicule.
WHO was and is severely criticised for its action and lack of action, for its lack of foresight and its lack of appropriate communication. WHO on its part went into a tailspin giving very contradictory messages and information based on which many countries took some major decisions that resulted in massive losses of life, resources, and finances. Political and geopolitical fallouts have occurred with China being painted as the villain-in-chief because many countries, including USA, believe that the virus originated in a laboratory in Wuhan, China, which was to be used as a biological warfare agent! Whatever may be conspiracy theories floating around, the truth is the world is yet to recover from the catastrophe. Nearly a million people lost their lives and more than a billion affected medically and mentally and financially due to this.
All right, so now what? This is the question that most of us have on our minds. Will we get back to our routine jobs, work, and incomes or not? What do the “experts” say? Let us check some of their opinions, observations, and predictions.
India is headed for a technical recession and the road to recovery will be long, analysts say
- India’s economy was already facing challenges with consumer demand and prolonged difficulties in the banking sector when the coronavirus pandemic hit. The country went into a national lockdown between late-March and May in an attempt to slow the spread of the virus which essentially led to a collapse in private consumption and investment demand, leading to significant job and income losses that created uncertainties and further curtailed spending.
- The Reserve Bank of India declared that manufacturing, particularly consumer non-durables, and some categories of services like passenger vehicles and railway freights have gradually recovered in the second quarter.
Prolonged Covid impact inevitable, 2020–25 growth to average 4.5% — Oxford Economics
The long-term scars caused by COVID-19 pandemic, amid a weak fiscal stimulus by the government, would push India’s trend growth substantially lower from pre-COVID levels, causing a large medium-term output loss, according to Oxford Economics. It forecast the potential growth to average just 4.5 per cent over 2020–2025, as opposed to its pre-virus forecast of 6.5 per cent.
Slowdown — a blip?
The slowdown may just be a blip after all. The World Bank, in the South Asia Economic Focus, said the country was expected to gradually recover to 6.9 per cent in 2021 and 7.2 per cent in 2022 on the back of an accommodative monetary stance. Reserve Bank of India (RBI) sees the emergence of some green shoots, such as rise in the cost of projects sanctioned by banks and financial institutions and higher investments in fixed assets by India Inc.
COVID-19 dealt a shock to the world’s top economies. Here is who has fared the worst:
The world’s top developed economies are all officially in a recession. What happens next is far from certain. Six months after the coronavirus outbreak began to accelerate rapidly outside China, it is increasingly clear that countries will not bounce back in tandem. The impact of the virus, public health policy, and stimulus measures are creating divergent paths forward with ramifications that could last years.
“It’s the path of the virus and the vaccine that’s critical to the recovery story.”—James Knightley, ING’s chief international economist.
As the initial hub of the outbreak and the first in the world to impose draconian measures to try to control the spread of the virus, China was the first major economy to reopen. That has given it a head start. Where these countries go from here depends in large part on the virus and the race for a vaccine, Knightley said, with some economists warning of the potential for a double-dip recession in which output falls again. A rapid increase in serious cases could prompt governments to reintroduce strict lockdown measures. That would slam consumer confidence for a second time, reduce spending and investment and throw the recovery off track. Government relief efforts also have a vital role in determining where economies go next.
Eventually, as the outbreak spread to Europe and then to other parts of the world, it became clear that the impact on the global economy would be far worse, and this led to massive declines for commodity prices, share prices (albeit for a short period) and corporate profits. At the same time, huge numbers of jobs were either lost, or were replaced by government-led furlough schemes. As the economic pain increased, governments were forced to step in and dramatically increase public spending, raising them to levels normally associated with wartime.
Developed Economies Suffer Massive Losses
Many of the world’s hardest-hit countries were those with highly-developed economies, particularly those with a high degree of dependence upon exports, foreign investment, and tourism. Overall, developed economies contracted by a staggering 11.9% on a year-on-year basis in the second quarter. While all developed economies shrank in the second quarter, some performed better than others. For example, developed economies in the Asia-Pacific region such as South Korea, Australia and Taiwan not only did a better job of slowing the spread of the pandemic within their borders, but they also recorded much smaller contractions than all other developed economies.
Most Emerging Markets Also Experience Sharp Declines
This devastation was not limited to the world’s wealthier countries, for most emerging markets also suffered huge losses in the second quarter of this year.
India suffers massively
India’s economy suffered a devastating 23.9% contraction in the second quarter, a much worse result than had been expected.
Remainder of 2020
As we look ahead, it appears a few countries may be able to return to higher levels of economic growth relatively quickly, but it looks as if most countries will experience uneven and intermittent recoveries over the remainder of this year and throughout the following year. COVID-19 pandemic is far from over and it can still go in many directions. Moreover there remains a great deal of uncertainty surrounding the development and distribution of vaccines for COVID-19, making it hard to determine when a full economic recovery can take place. While it appears that the worst is behind us in terms of the immediate economic impact of the pandemic, there are certainly some challenging times ahead for the global economy.
IMF estimates global COVID-19 cost at $28tn in lost output!
International Monetary Fund has scaled back its estimate of the hit to the global economy from COVID-19 this year but warned that the final bill for the pandemic would total $28 trillion in lost output! IMF described coronavirus as the worst crisis since the Great Depression and said the pandemic would leave deep and enduring scars caused by job losses, weaker investments, and children being deprived of education. In its flagship world economic outlook, the IMF said a stronger than expected performance in the second and third quarters makes for a positive outlook. The IMF said swift action by central banks had softened the impact of the damage to economic activity caused by lockdowns, and warned against the premature removal of support measures.
Does it look bleak for India?
Not really, it seems. Nomura says India would be fastest growing Asian economy in 2021.
India could well be the fastest-growing Asian economy in calendar year 2021 (CY21) if Nomura’s forecasts are to be believed. The foreign research and brokerage house expects the Indian economy, as measured by gross domestic product (GDP), to grow at 9.9 per cent in 2021, eclipsing China and Singapore during this period. Nomura has turned positive on India’s cyclical outlook for 2021 and believes the country is on the cusp of a cyclical recovery. The change in stance comes after nearly two years (end-2018) when it had turned negative on India’s growth. Sharper-than-expected rebound by India in the second quarter has taken most analysts by surprise.
The fastest-growing tag in 2021, however, will come with its own challenges. A slower pace of recovery in the informal sector, according to them, implies the cyclical recovery maybe a jobless recovery and can lead to lower per-capita income, higher inequality, pressure for more populist spending by the government and social tensions. At a macro level, Nomura expects global growth to pick up from negative 3.7 per cent in 2020 to 5.6 per cent in 2021. Asian Development Bank (ADB) on Thursday upgraded its forecast for the Indian economy, projecting 8 per cent contraction in 2020–21 as compared to 9 per cent estimated earlier. Observing that the economy has begun to normalise, the Asian Development Outlook (ADO) Supplement said the second quarter contraction at 7.5 per cent was better than expected, highlighting that India is recovering more rapidly than expected.