World Economy from the current lens; Realise, Reimagine and Reinvent

INTRODUCTION

For many generations, at least the century of mankind’s most progressive years, the pandemic of COVID-19 has jolted rudely. As a great blessing in disguise, it has also put the power of human endurance and resilience to a tough test. No one ever dreamt work from home would be the new normal and seamlessly deliver outcomes as desired. Millions of good souls were relentlessly waiting to work for the cause of global warming, how surprising it is to see the carbon footprint nosediving all-time high, thereby giving us the luxury of clean air. This prompts us to ponder how many millions of hours are put to optimum utility resulting in strong bonds being built amongst families all attributed to home confinement. While the hypothesis remains to be tested, the humanity of this world cannot give away the feed to gut and brain and continue to medicate to deal with a plethora of plaguing diseases; economy in these segments such as agriculture, IT, and Healthcare would remain least impacted.

Millions of those who were technologically challenged and disadvantaged had a compelling reason to shape the learning curve and resonate with the pace of change and deliver desired objectives. It was impossible to have imagined that the plummeting oil prices would save billions of dollars impacting the economy and the world coming to a screeching halt would render the quality of air index purer. Curious readers can realise the same by moving the cursor on the world air quality index map.

Several decades ago (13th Century), the Black Death which was also acknowledged as Plague, a devastating disease, had wiped nearly half of the global population.[1] Today, human life seems to be far well equipped in dealing with the pandemic given the technological advancement mankind has accomplished. In contrast to nature’s fury when we introspect the self-inflicted disasters akin to World War I (1914-1918) where the estimates of casualties of military and civil stood at about 40 million.[2] Having not learned lessons, the brutality of power struggle again raised its head with the onset of World War II (1939-1945) wiping almost 3% of the 1940s World Population.[3] The world was tested harder during the great depression before, while we were far more fragile, less equipped, and hardly connected. The economy suffered far-reaching consequences with more than 50% of international trade[4] destroyed thereby spiralled unemployment rates pushing many into utter despair and poverty. Don’t we owe to the technologies today, for we still as a world are on one plane with many businesses seamlessly running? This probably will change the mindset of humanity and propel us in the direction of innovating, redefining, and developing business management across the world. It is worth diving into some economic ramifications that COVID-19 has plunged the world into and tossed the fortunes of the global economy.

At the outset, the world had a twenty-twenty vision that the COVID-19 pandemic will be restricted to China only. It eventually exploded across the world with the movement of people and the financial system had to prioritise human health care factors before implementing any further policies. Today, individuals prefer to stay at home and the world is threatened by the drastic economic austerity. With travel restrictions, there has been a severe sectoral impact affecting industries like tourism, education, oil and gas, pharmaceutical, transport, telecom, financial services, consumer-retail, textile, food and agriculture, and MSMEs.[5]

Air travel is among the most noticeable economic victims of rules imposed to stop COVID-19 from spreading, with 95% of commercial airlines being disbanded.[6] The economy reads that this year the aviation industry has faced more than US$ 250 billion losses[7]. The aviation industry contributes around 2.4% to the GDP and employment[8] and the Central Government spent about INR 37.98 billion[9] in the subsistence of its cousin sectors like tourism.

COVID-19- IMPACTS ON GLOBAL ECONOMY

When the pandemic reached its pinnacle, almost all airplanes flew unoccupied due to mass cancellations. Subsequently, the travel restrictions introduced by the authorities led to a decline in the requirement for all modes of transportation which compelled many airlines to temporarily cease business activities. These economic sanctions caused the tourism sector a cumulative loss of over $200 billion. Moreover, a combined loss of $113 billion, according to IATA, was estimated for the aviation industry.[10] The GTBA[11] estimated that the pandemic may cause the corporate travel industry to suffer losses of about $820 billion[12] in annual revenue. Price variations in the sector have been on a medium scale with a decline in demand for fuel, hospitality services, etc, and the IATO[13] has correctly identified that in the coming times, the travel, hotel, and aviation sectors, may suffer losses of about INR 85 billion[14] due to the emerging trends of the lockdown. There seems no difference in the impacts felt on both black and white collared jobs due to this pandemic.

Numerous hotels in the United States, the United Kingdom, and several other European counties have declared a provisional termination of regular operations, raising the total job loss to 24.3 million globally and 3.9 million in the United States[15] due to the decrease of hospitality accommodation since the pandemic. The pandemic’s inflationary effect on the hotel industry was stronger than the collective recessions of the 9/11 emergency.[16]

To keep up the adaptability of the worldwide monetary framework and to support the world economy, today, Central Banks far and wide, have been the preferred choice of the guard. Predominantly, by decreasing interest rates in extraordinary lows in developing countries, they have significantly loosened up financial strategies.

In global markets and underdeveloped-poor income nations, roughly half of the central banks have already cut policy rates.[17] The implications of monetary easing will be strengthened by guidance from central banks along with the long-term outlook of monetary policy and improved asset purchase programs. Second, the Central Banks have given maximised liquidity to the financial systems and state banks to preserve the stability in cash flow in the markets. The third most important point is that the Central banks recently sought to boost the supply of liquidity to the US dollar with exchange line transactions.

All through the pandemic, several import-based economies were severely impacted. Several countries have been importing their vital raw materials via global exporting countries such as China, India, and Japan and therefore are heavily dependent on such countries for essential commodity intake. Considering China’s success as an exporter for many countries, the transit of goods across the world through flexible supply chains diminished. Thereafter, the Chinese government commanded for the destruction of huge industrial infrastructures in the nation because of the pandemic.

A decline in imports might have a detrimental effect on selected categories of retail and durables. An increase in the price of remaining commodities exposed threat to inflationary pressures on prices of the basic necessity commodities, considering the low demands of other imports. It became problematic to discover new alternatives after China, being the hub of most important industries, completely shut down their factories and outlets, and sealed borders. This hit the nations globally like a lightening.[18]

In India, consumer-retail business collectively contributed around 10% and 8% to GDP and employment respectively.[19] Development for particularly non-essential products will be a massive challenge, with the demand struggling to scoop up to profiting immediately. Private sector banks now have the biggest credit risk coverage since the pandemic.[20]

Surprisingly, in early 2020, oil prices dropped as a result of Russia’s commodity price war with Saudi Arabia.[21] Moreover, the pandemic has made the situation tougher by reducing oil production. The travel bans imposed during the pandemic, which resulted in a decrease in the mass migration and goods flow, inevitably resulted in a decrease in demand for aviation fuel, coal, and other energy products. Later, while Saudi Arabia powered the world with excess oil, the economy became inundated with enough oil, surpassing demand during the pandemic and leading to a fall in oil prices.[22] In India, the government receives a substantial portion of its revenue from excise taxes, with nearly 90 percent coming from oil imports.[23] Consumer rates have not been reduced as the government has been using the reserve to support its expenditure. However, once the shutdown is over, the government will face increased pressure to lower consumer fuel prices.[24]

The pandemic has adversely affected the health sector and the world saw a sudden rise in the number of deaths, due to the long-drawn inadequacy of medical supplies, lack of vaccine to treat patients, inadequate quantity of emergency rooms, and containment centres to account for the growing number of COVID-19 cases. The Spanish Government observed a speedy rise in the cases in a very short period of time.[25] The Ministry of Health in Singapore took notes from this situation and reserved sufficient supplies of health care to aid the country form the pandemic and provisioned to bar foreign patients from entering the country.[26]

India used to import consumer goods, cleaning products, and industrial goods from China including orthopaedic implants, pads, syringes, bandages, magnetic resonance imaging tools, etc. Because of the current crisis, it is complicated for medical device manufacturers around India to link significant commodities and electronic parts from the Chinese manufacturing plants.[27]

The Education and skilling industry may also face a decline in manpower by approximately 10-15%[28] and affected almost 290.5 million[29] students all over the globe.

Kristalina Georgieva,[30] Managing Director of the International Monitory Fund (IMF), described it as “a recession that is at least as severe as it was, or worse in the global financial crisis.” [31] Saving the people and saving the economy can never be correlated and hence policymakers all over the world had to decide to choose from the two. In some countries, the economy was left to suffer losses, and saving the people was prioritised. In some nations, monetary policies were introduced side by side the policies for people, helped to relax the market situations. It is thus a subsequent process. In the worst case, the full-year GDP growth may also fall to zero as stated by Bloomberg Economics,[32] and different nations have multinationals operating worldwide because now the economy is global. Hence, for instance, one can dismantle the US or India’s output by shutting down Chinese output.

CONCLUSION

Engines of economy hereafter shall be powered by unique innovations that are sustainable and rewarding. The future may look uncertain, but humans have stood the test of time, in not only waging and winning a battle but also resiliently reimagining and resonating with the new normal. Therefore, psychologically we have to mutate faster to adopt the precautionary measures and reimagine the ways to live than the pace of virus mutation.

The humanity in the current era will not be the same again, and the new normal will bring in the virtues of empathy, kindness, willingness to learn, differentiate need and greed, respect for nature, and ways of counting blessings.

Opinion expressed by the authors are personal.


[1] Gould, George Milbry; Pyle, Walter Lytle (1896). “Historic Epidemics”. Anomalies and Curiosities of Medicine. Blacksleet River. ISBN 978-1-4499-7722-1.

[2] World War I, John Graham Royde-Smith and Dennis E. Showalter, Encyclopædia Britannica, inc. March 27, 2020

[3] “International Programs – Historical Estimates of World Population – U.S. Census Bureau”. web.archive.org. 2013-03-06. https://web.archive.org/web/20130306081718/https://www.census.gov/population/international/data/worldpop/table_history.php

[4] Frank, Robert H.; Bernanke, Ben S. (2007). Principles of Macroeconomics (3rd ed.). Boston: McGraw-Hill/Irwin. p. 98. ISBN 978-0-07-319397-7.

[5] Micro, Small and Medium Enterprises

[6] Catherine Early, Faced with a crisis, airlines seek delay on climate measures, Modern Diplomacy, May 10, 2020.

[7] Ibid.

[8] Jayant Singh ,Aviation, Tourism and Hospitality sector overview, Invest India, 25 March 2020.

[9] Union Budget Speech, Ministry of Finance, Nirmala Sitharaman, 1 February 2020

[10] IATA, The International Air Transport Association, Updates COVID-19 Financial Impacts -Relief Measures Needed, 5 March 2020.

[11] GBTA, Global Business Travel Association.

[12] Reuters, Business travel sector to lose $820 billion in revenue on coronavirus hit: industry group, Business news, March 11, 2020.

[13]  IATO, Indian Association of Tour Operators

[14] Anumeha Chaturvedi, Tour operators, hotels brace for slump after visa suspension, The Economic Times, 13 March 2020

[15] American Hotel and Lodging Association, COVID-19’S impact on the hotel industry, “in the U.S., hotels have already lost more than $21 billion in room revenue”.

[16] Ibid

[17] Bruno Gurtner, The Financial and Economic Crisis and Developing Countries, OpenEdition,

[18] Weizhen Tan, Oil prices fall to 17-year low as Saudi Arabia-Russia standoff continues, coronavirus hits demand, CNBC Markets, March 30 20201:21 AM EST. Cnbc.com/2020/03/30/oil-falls-amid-saudi-arabia-russia-price-war-coronavirus-hits-demand.html.

[19] Retail Sector Overview, Federation of Indian Chambers of Commerce and Industry, 25 March 2020.

[20] Benjamin Parkin, Coronavirus threatens India’s banking recovery before it even starts, Financial Times, March 26, 2020.

[21] . Supra note 19

[22]Ayush Saxena, the covid-19 impact on the oil industry, invest India, april 21, 2020.

[23] Ibid

[24] Ibid

[25] Rudan I. A cascade of causes that led to the COVID-19 tragedy in Italy and in other European Union countries. J Glob Health. 2020

[26] Salma Khalik, Coronavirus: Singapore has sufficient healthcare facilities, THE STRAITS TIMES, MAR 21, 2020, 5:00 AM SGT https://www.straitstimes.com/singapore/spore-has-sufficient-healthcare-facilities

[27] Coronavirus impact on healthcare sector, Economic Times, April 14, 2020.

[28] Current and potential impact on the skilling sector, Potential Impact Of COVID-19 On The Indian Economy, KPMG, APRIL 2020, Pg. 29.

[29] COVID-19 Educational disruption and response, UNESCO(United Nations Educational, Scientific and cultural Organisation), May 10, 2020.

[30] Kristalina Georgieva, Managing Director of the International Monitory Fund

[31] Kristalina Georgieva, The Great Lockdown: Worst Economic Downturn Since the Great Depression, IMF Press Release no. 20/98, March 23, 2020. https://www.imf.org/en/News/Articles/2020/03/23/pr2098-imf-managing-director-statement-following-a-g20-ministerial-call-on-the-coronavirus-emergency

[32] Tom Orlik, Jamie Rush, Maeva Cousin and Jinshan Hong, Coronavirus Could Cost the Global Economy $2.7 Trillion. Here’s How, Bloomberg Economics, March 6, 2020, 8:30 PM. https://www.bloomberg.com/graphics/2020-coronavirus-pandemic-global-economic-risk/

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