In just four months since the emergence of a mystery virus in China, the world has become a dramatically different place. Covid-19 has become a household word in nearly every country on the planet, leaving a trail of sickness and death that has not been seen in decades.
The economic side effects have been equally catastrophic, with air transport all but halted, supply chains severely disrupted and tens of millions of people left jobless as all kinds of economic activity is suspended.
At the beginning of this year, with uncertainty over the US–China trade conflict and Brexit receding, the global economy was showing some promising signs after a wobbly 2019, when growth was the lowest since the global financial crisis of 2008–09.
But the spread of Covid-19 has dashed hopes for any kind of upturn this year, as forecasters offer a bleak outlook for trade, investment, consumers and unemployment.
In Wuhan -- where the virus first made its appearance -- tens of thousands of Chinese have begun to cautiously go out and about after officials lifted a nearly 11-week lockdown.
But as China starts to return to something approaching normal, Covid-19 infections are peaking in the US and Europe, where governments are debating over how soon and by how much to reopen their economies without touching off a second phase of the virulent scourge.
The lockdowns enforced by many countries are having drastic effects on economic activity. According to Fitch Ratings, daily activity is down by about 20% from normal levels in many places.
The impact on gross domestic product (GDP) will depend on how long strict control measures last. It envisions a two- to three-month crisis including a five-week "peak stringency" lockdown, which would translate to a decline of 7-8% in quarterly GDP. For the full year, it expects the world economy to contract by 1.9%.
'THE GREAT LOCKDOWN'
The International Monetary Fund (IMF), meanwhile, predicts that the downturn resulting from the "Great Lockdown" will be the worst in almost a century, with a 3% contraction in 2020, compared with 0.9% in 2009 after the global financial crisis that began in the United States.
"For the first time since the Great Depression, both advanced economies and emerging-market and developing economies are in recession," IMF chief economist Gita Gopinath said in a statement as the organisation released its World Economic Outlook 2020 report in early April.
The report provided two scenarios. In the baseline scenario -- the pandemic recedes in the second half of this year and containment efforts are gradually lifted -- the global economy is projected to grow by 5.8% in 2021 as economic activity gradually returns to normal with the help of policy support.
In an adverse scenario -- a more protracted pandemic -- global GDP would fall an additional 3% in 2020, while, if the pandemic continues into 2021, GDP may "fall next year by an additional 8% compared to our baseline scenario", she said.
To avoid a worse outcome, the IMF urges policymakers to implement substantial targeted fiscal, monetary and financial market measures to support affected households and businesses.
"Once the recovery has happened and we are past the pandemic phase, for advanced economies it would be essential to undertake broad-based stimulus," said Ms Gopinath, adding it would be even more effective if the effort were coordinated across all the advanced economies.
The IMF is also urging strong multilateral cooperation to help poorer countries deal with health and funding shocks, adding that countries with weak healthcare systems should be provided with aid.
"Commensurate with the scale and speed of the crisis, domestic and international policy responses need to be large, rapidly deployed and speedily recalibrated as new data becomes available," Ms Gopinath wrote in a blog post.
"The courageous actions of doctors and nurses need to be matched by policymakers all over the world so we can jointly overcome this crisis"
"Better public healthcare and social security systems will be needed to accommodate any similar social disruptions in the future," says Pongphisoot Busbarat, a lecturer in International Relations at Chulalongkorn University. SUPPLIED
MOST VULNERABLE
Projections by the World Bank also indicate severe economic fallout in developing countries. East Asia and the Pacific is among the regions that could be hit the hardest.
"Growth in the developing part of East Asia and the Pacific (EAP) region is projected to slow to 2.1% in the baseline and to negative 0.5 in the lower-case scenario in 2020, from an estimated 5.8% in 2019," said Aaditya Mattoo, the bank's chief economist for East Asia and the Pacific.
Growth in China is projected to decline to 2.3% in the baseline and 0.1% in the lower-case scenario in 2020, from 6.1% in 2019. China last Friday reported a 6.8% year-on-year contraction in first-quarter GDP -- the first hard numbers from a major economy showing the full impact of the pandemic.
To prevent further deterioration, the World Bank calls for urgent investments in healthcare capacity and targeted fiscal measures to mitigate some of the immediate impacts, according to its April 2020 Economic Update for East Asia and the Pacific.
Governments are being urged to take an integrated approach of containment and macroeconomic policies. Targeted fiscal measures, such as subsidies for sick pay and healthcare, would help with containment and ensure that temporary deprivation does not translate into long-term losses.
"In addition to bold national actions, deeper international cooperation is the most effective vaccine against this virulent threat," Mr Mattoo said. "Countries in East Asia and the Pacific and elsewhere must fight this disease together, keep trade open and coordinate macroeconomic policy."
If the crisis is prolonged, the report emphasises the need to couple those measures with regulatory oversight, particularly as many countries already have a high burden of corporate and household debt.
Mr Mattoo said debt relief would be essential for poorer countries so that critical resources can be focused on managing the economic and health impacts of the pandemic.
"EAP economies are at risk because they are dependent on sectors that are particularly vulnerable to pandemic, such as tourism in Thailand and the Pacific Islands, manufacturing in Cambodia and Vietnam, and many countries are also dependent on informal labour."
In its baseline scenario, the World Bank expects growth in the developing EAP region to slow to 2.1%, while in the lower-case scenario growth would slow to negative 0.5% in 2020, from an estimated 5.8% in 2019.
"Deeper international cooperation is the most effective vaccine against this virulent threat," says Aaditya Mattoo, World Bank chief economist for East Asia and the Pacific. Supplied/World Bank
Along with lockdowns and travel bans to flatten the infection curve, governments should take monetary, fiscal and structural measures to "flatten the recession curve", it said. The report stresses that early investments in health can reduce the need to take costly preventive measures when epidemics strike, citing the examples of Singapore and South Korea, which have benefitted from high levels of testing, tracking and quarantines. (But now Singapore is dealing with a large new wave of infections among migrant workers living in cramped dormitories.)
The bank also suggests governments make it easier for households to access credit to ease economic hardship and keep consumption going. Easier access to liquidity is also needed to help businesses survive; however, regulators must keep a close eye on risk of financial instability, especially in economies with high levels of private indebtedness.
For poorer countries, debt relief is essential to make sure that critical resources can be focused on managing the economic and health impacts, the World Bank added.
The Asian Development Bank (ADB) has made similarly gloomy projections. The Manila-based organisation maintains that developing countries in Asia will experience a slowdown while struggling to contain the virus.
The ADB forecasts that economic output in nine of its 46 developing member countries will shrink. It projects aggregate economic growth will decelerate to 2.2% in 2020 but recover to 6.2% (from a low base) in 2021. By subregion, South Asia will experience the mildest deceleration while the Pacific will experience the steepest slowdown.
According to Asian Development Outlook 2020, the ADB's annual flagship publication, the slowdown will be prominent in China where the virus first emerged. Recession will deepen in Hong Kong but will begin to ease as fiscal responses and stronger exports bring recovery, probably beginning in 2021.
South Korea and Taiwan will also experience a downturn this year before recovering next year on public spending and resurgent exports, while growth in the closely intertwined economies of Malaysia and Singapore will plummet nearly to zero in 2020, with only Malaysia enjoying a strong rebound next year.
Cambodia and Indonesia will see sharp deceleration, as will the Philippines despite expansionary government policies. Also, growth in Vietnam is forecast to decelerate significantly but remain uniquely robust in the subregion, the report reads.
TRADE TAKES A HIT
The pandemic could also cause a deeper collapse of international trade flows than at any point in the postwar era, according to the World Trade Organization.
"Trade in 2020 will fall steeply in every region of the world, and basically across all sectors of the economy," WTO chief Roberto Azevedo said in a virtual briefing from Geneva, adding that the economic downturn may "be the deepest economic recession or downturn of our lifetimes".
The WTO said that in an optimistic scenario, global merchandise trade could fall 13% in 2020 and rebound 21% in 2021 -- compared with a 0.1% contraction in 2019. In this scenario, GDP could contract by 2.5% in 2020 and grow by 7.4% in 2021.
However, in a pessimistic case, the volume of global goods trade could drop by as much as 32% this year with the possibility of a 24% increase next year. In this scenario, world GDP could shrink by as much as 8.8% in 2020 and expand by 5.9% in 2021.
According to the WTO, North America and Asia would be hardest-hit regions and could see their exports plummet by 40% and 36% respectively, while Europe and South America could see declines of more than 30%.
The WTO holds the same view as the World Bank, saying countries could ensure a faster and stronger rebound through international cooperation, advising them to turn away from protectionism.
"Keeping markets open to international trade and investment would help economies recover more quickly," Mr Azevedo said, adding that "we will see a much faster recovery than if each country goes it alone".
For vulnerable Asian countries, especially in Southeast Asia, regional cooperation will be the key to restabilising their economies, says Pongphisoot Busbarat, a lecturer in International Relations and Southeast Asia expert at Chulalongkorn University in Bangkok.
Advanced economies such as China, Japan and South Korea could collaborate with Asean and come up with a regional economic package to do so. A promising start was made during an Asean+3 videoconference last week, where leaders expressed their commitment to help restore economic health.
However, Mr Pongphisoot said this time, developing countries in the region cannot afford to wait for economic assistance from the US and Europe because their economies are also victims of the pandemic.
"Regional collaborations are the most plausible solutions for the region," he said. "East Asia has turned to such cooperation for two decades since the economic crisis in 1997, so it is not unusual to use the best practices the region already has."
In the long run, he urged governments in the region to consider the needs of society in each country. They may need to push for changes in terms of preparedness and social welfare systems to cushion the impact of future crises.
"Better public healthcare and social security systems will be needed to accommodate any similar social disruptions in the future," he said. "This may need to involve the revamp of taxation toward the redistributive spectrum so that the restructuring of social welfare can be sustainably financed."
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