According to economists at the International Monetary Fund (IMF), even before the outbreak of the coronavirus, global growth recorded a low since the 2000s financial crisis. Due to cyclical and structural slowdowns, a blog on IMF website says that there is 'uncertainty' of global economic environment.
The blog called it "tight wallets" due to weaker spending on machinery, equipment and consumer durable goods, which have contributed to the global slowdown in industrial activity, while the banks have heavily cut the policy rates in response. All these factors were accounted before the coronavirus outbreak and a forecast by Bank of America Global Research team put the global GDP growth estimate to be just 2.8% in 2020, the worst since the last recession.
Global unrest before coronavirus
There have been protests globally demanding political freedom, end to corruption, stem price rise, inequality and tackle climate change. Essentially, the economic and political crisis has left people in want and they have lost confidence in the prevailing political leadership. But the protests reflected the economic crisis that the world witnessed before the coronavirus outbreak.
Post-coronavirus estimates of global economy
In January IMF projected growth in its January outlook from 2.9% last year to 3.3% percent this year, but after the extent of outbreak IMF reported to the G20 in Riyadh that "the virus will likely cut off 0.1% from global growth, and drag down growth for China's economy to 5.6%, which is 0.4% lower from its January outlook."
The world would be impacted adversely even in the case of rapid containment of the coronavirus, said the IMF Managing Director Kristalina Georgieva.
Raghuram Rajan, a former chief economist at the IMF said that in case the weakest links of global business supply chains are hit, it would disrupt the whole chain of business. Globalization in production will be hit badly. However, he said that it's too early to say about a possible recession from the epidemic, as it depends on 'consumer confidence and jobs situation' adding that "the best thing that governments can do is to really fight the epidemic rather than worry about stimulus measures," stressing that government spending would help.
Former Federal Reserve Chair Janet Yellen said that the economy started to recover from its weakness before the outbreak, but owing to the closure of factories in China that impacted supply chains adversely and affected the consumer spending. Depending on the extent of the outbreak, the economic impact would have significant impact on Europe and push the US too to recession.
With China in lockdown, up to 42% of China's economy could be affected, according to the Standard Chartered bank. China's growth could slow to weakest level since 1990, according to median forecast of 83 economists polled by Reuters.
These opinions are backed by stark facts. Oil prices fell and rose during February, but we saw that reports of the spreading virus put down the prices. Chinese airlines expected to lose $12.8 Billion as flying stalled. Airline industry across the world would lose $29 Billion, according to the International Air Transportation Association (IATA).
In the background of tradewars with the US and the pre existing slowdown, millions of jobs were lost in China and COVID-19 has added more. The economies dependent on China, also have felt the crisis and would have to find an alternative that's profitable to both parties. Some economists say that the virus wouldn't cause a global recession yet, but only a 'larger slowdown'. While the world's 1% own as much as wealth as 60% of the global population, according to Oxfam. We may learn that the -pre virus- existing conditions have pushed the economy down before the coronavirus itself. There were signs of recession before the virus.
IMF's Georgieva said: "We all hope for a V-shaped, rapid recoveryâbut given the uncertainty, it would be prudent to prepare for more adverse scenarios." This 'uncertainty' she mentioned would only be contributed by the pre-existing uncertainty in economy, as mentioned by the IMF blog before the virus outbreak.
If anything that coronavirus can cause economically is that it would add greatly to a possible recession and not cause one on its own, given that the containment efforts go as good as it can. Measures should be taken to solve the global economic crisis just as much as telling the people to stay calm and be confident about containing the virus.