The world has changed dramatically in the last
three months and has witnessed a rare collapse in activity that has followed with
severe consequences unlike anything experienced in our lifetime.
This is a collective crisis like no other and its
impact on people’s lives and livelihoods.
A collective effort and action would tell us the effectiveness
of containment measures, and the development of the remedies that is on the
horizon that is far as of now.
It is hard to predict when a vaccine is
available, despite so many laboratories already making tall claims about it
without a single vial being produced so far by any of them.
In this time of crisis, profit motives of
laboratories have not waned and corporate posturing is visible to stay in
limelight & in public debate.
In addition, many countries now face multiple
crises—a health crisis, a financial crisis, and a collapse in commodity prices
and its service sectors.
Governments world over are providing unprecedented
support to households, firms, and financial markets, and yet there is
considerable uncertainty about what the economic landscape will look like when
we emerge from this lockdown.
This makes the Great Lockdown the worst recession
since the Great Depression, and far worse than the Global Financial Crisis of
2008 that was a financial meltdown due to folly of US Government that allowed
unmerited, unverified exotic financial instruments assume derivative values
without a penny in underlying assets in those derivatives that collapsed.
That was financial contagion, this is pandemic. That
was a meltdown, this a rapid boil.
This is a truly global crisis of health and
question of life and death of people in thousands and thousands & no
country is spared.
Emerging market and developing economies face
additional challenges with unprecedented reversals in capital flows as global
risk appetite wanes.
On top, steep currency devaluation pressures is
staring straight at them, India included. Simultaneously, these countries are trying
to cope with weaker health systems, and more limited fiscal space to provide
support. They cannot cope unless supported by the world.
Countries depending on tourism sector would go in
deeper recessions and widespread job loss and likely would shift almost 20 to 25%
of their population in poverty- meaning a dollar or less of per capita income per
day.
Since the Great Depression, for the first time,
both advanced economies and emerging market and developing economies are in
recession.
IMF projects in advanced economies negative -6.1 %
growths. Income per capita is projected to shrink for over 190 countries. One
can easily see that coming.
The above are the basic contours of baseline
cases contemplated by most world institutions, like IMF, World Bank, & other
reputed global rating agencies.
I would say it as rather optimistic and social
reality aspects considered is largely obscure.
What happens, if the pandemic may not recede in
the second half of this year leading to longer durations of lockdown hence
worsening financial conditions and further breakdowns of global supply chains
& social unrest & structures?
In such cases, global GDP would fall even further
by an additional 4 to 5 percent in 2020.
If the pandemic is more protracted this year and continues
into 2021, it may fall next year by an additional 6 to 8 percent compared to
our baseline scenario.
That means if this pandemic and lockdown as a
consequence of that, we are cumulatively staring at a shrinkage of world GDP by
16 to 20 percent- nearly one fifth of worlds’ GDP.
At baseline case, a value shrink in global trade
is estimated at 9 trillion dollars- almost as if India produced nothing for
last three years!!!
And in case of extension of lockdown and pandemic
rolling over to third or fourth quarter, world would easily lose about 20 trillion
of trade values and more than 700 million people going out of jobs and nearly
one billion sliding to poverty levels. What the world achieved post
liberalisation in thirty years would vaporise in less than thirty months.
That is unthinkable, but is a distinct
possibility that cannot be overlooked.
Economy and Policy trackers of the world now
would need two pair of glasses to examine the current realities.
One is with a political-economy where crisis is
socio-centric, where social markers are more prevalent over others.
The other is business centric, where global
supply chains, wages, and productivity becomes the focus.
Whichever way one looks at it, I am getting
increasingly certain in my belief is that world would be fractured from all socio-political
angles.
Socio political markers of demography would be
redefined as people sliding to poverty in developing world would be quick and
very large in numbers. So would be malnutrition and diseases that would push
the world in a retrograde mode for several years.
We need a very different kind of economics now, if
we are to build socially just and ecologically sound futures.
Maybe a pipedream it may seem, but the post pandemic resurgent world would
change the way people, politicians, government and policy makers would look at
economy, society and people.
In the face of COVID-19, this undercurrent has
never been more obvious and challenging.
The responses to the COVID-19 pandemic would simply
be the amplification of the dynamic that drives other social and economic
crises and a new way to reduce dependencies on globalised supply chain as the
mainstay today for growth engine where China played a pivotal role and hence
on, China would not be trusted anymore by most countries.
The world would face another dilemma- the
prioritisation of one type of value over others. This dynamic has played a
large part in driving global responses to COVID-19 thus far.
So as responses to the virus evolve, how might
our economic futures develop?
Certainty is difficult call, but it would not be
China centric & that is more certain.
How would the world believe them when in this
crisis they have piraihnic attitude and are ready to nibble whatever slice of
desperation they can buy from the world at deeply discounted price. Many
countries, sensing that, have started ring fencing their policies to stave off
such parasitic opportunistic attacks on their economy.
No one would trust China anymore, not that they
had great fan following, but their stock of “cheap opium” would not be effective
bait anymore as more and more of their ugly and dirty ways would come to public
domain and world is gauging the overall cost of Chinese product ownership that
has human rights, privacy, expansionist and environmental cost. Overall, the
cheap has been indeed cheap and financially more expensive in longer run. .
Today, the global giants of economy have become
fragile and are on a verge of collapse, US & China included and not
forgetting the Euro Titans.
The economics of collapse are fairly
straightforward. Businesses exist to make a profit. With more than 800
million people out of job suddenly worldwide, the businesses would have just
one way to go- South. That means taking losses- how much and how long would be
the key questions that most businesses would grapple with.
The rehabilitation of businesses and economy is a
slow process and would take humungous efforts to put back things to track. In
the meantime, the weaker corporations and entities would fall by the wayside
and the remaining one would only get momentum, if adequately supported by local
policy restructuring and fiscal supports.
During financial meltdown of 2008, USA supported
its institutions by injecting nearly a trillion dollar. This time it has
committed more than five trillion dollars already for it. That should help us visualise
the depth of this shock.
This is visibly painful, but there is no other
way right now out of this abyss.
COVID-19 response cannot be remedied like a
wartime economy with up-scaling of production as a panacea to churn out a
surging economy. Here we need to be more resilient to pandemics and that would
mean lesser productivity as less and less manpower would be available, unless
the world develops sudden herd immunity to Covid 19.
That is science fiction. So what we need is a
different economic mindset.
Post Covid 19 , the focus of the government
worldwide would be reduce human misery emanating out of the pandemic that would
mean restoration of job losses, resumption of economic activities, resumption
of global trade and other activities that has put the service industries
worldwide to a grinding halt.
Resuming them would be quite challenging as
disruption and blame politics would take its additional toll.
Latest we hear is about a renowned virologist &
a French Nobel Laureate, Luc Montagnier, co-discoverer of the AIDS virus and he
is of opinion that that this virus is manmade in Wuhan Safety Level 4 Lab. His
postulate seems very plausible that a Corona Virus strand cannot have a gene
implant of a malarial genome, unless spliced and engineered.
Many other studies from renowned virologists have
also postulated to its “Manmade” credentials that has been promptly denied by
China.
If that is a fact and that is being investigated
by USA and others, we can see a different ugly world if proven true.
Leakage by mistake would still be viewed
differently by the world, but if deliberate, then it is WW 3 that would be
fought by biochemical & by software weapons without firing a single bullet.
It would be destruction beyond imaginations as full force of technology would
be used against mankind, whichever is the country in question, casualty would
be human life only.
USA has already warned China officially on it and
certainly the world must get to the bottom of this & truth must prevail, no
matter whatever are the consequences and that has the potential to overlook the
economic fallout for a while more.
No wonder Trump started taking malarial pills in
dozens after being briefed that this strand of virus could have a malarial germ
implant.
20 April 2020
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