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World Economy to go into Recession? - COVID-19
The recent outbreak of the novel Coronavirus (COVID-19), which began in Wuhan, China, has taken the world by surprise affecting more than 200 countries around the globe. After the United Nations declared the outbreak to be a pandemic, in early March, many nations have gone into lockdown leading to a stoppage of trade and business between, and even within, countries. The lockdowns and quarantines have resulted in slower deliveries because of a shortage of workers, materials, machinery and parts and in turn, production and employment have been affected.
A report by the Institute of Supply Management (ISM) found that employment has dropped to 42.2% from 47% with employees suffering from hiring freezes and even outright layoffs in many cases[1]. With so many citizens out of jobs and unemployed, there is a certain lack of income and due to this there has been a substantial decrease in demand which further affects any industry that is continuing to function. The industries that have been hit the hardest include energy, textiles, transportation, machinery, furniture and appliances where deliveries have been postponed indefinitely. The only industries that have shown a significant amount of growth are electronics, plastics and rubber. Electronics because they have become indispensable during this time of lockdown and plastics and rubber because of their use in protective gear, the need for which has spiked due to the rapid spread of the virus. Furthermore, according to an analysis by the United Nations Department of Economic and Social Affairs (DESA)[2], even tourism and migration of people have come to a screeching halt with the pandemic forcing countries to close borders and disrupting global supply chains. DESA went on to state that “millions of workers in these countries are facing the bleak prospect of losing their jobs. Governments are considering and rolling out large stimulus packages to avert a sharp downturn of their economies which could potentially plunge the global economy into a deep recession.”
A recession is defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in Gross Domestic Product in two successive quarters.” Although it can be pointed out that a recession is measured over two successive quarters, the situation that nations are facing currently is one of economic decline and it is usually referred to as a recession. The last great recession lasted for almost two years from 2007-09 and it was the worst one the world had seen but tracing the current economic decline, the International Monetary Fund (IMF) has declared that the world has entered a recession that is as bad as, or worse than the one in 2009[3]. According to the International Labour Organization (ILO), 5 to 25 million jobs will be eradicated leading to a $860 billion - $3.4 trillion loss in labour income[4]. The United Nations Conference on Trade and Development (UNCTAD) projected a 40% downward pressure on global foreign investments flows[5] while the World Tourism organization (UNWTO) saw a 30% decline in international travel[6]. Moreover, the UN Educational, Scientific and Cultural Organization (UNESCO) predicts that more than 1.5 billion students will be out of school worldwide.
After the virtual G-20 Summit held on the 26th of March, Secretary-General of the United Nations, António Guterres launched the report on the “Socio-Economic Impacts of COVID-19” attempting to focus on the recovery from the crisis[7]. The UN Chief pushed for policies that would support vulnerable groups by providing health and unemployment insurance, social protections, prevention of bankruptcy and job losses and well as strategies that would bolster business. He also advocated the prioritisation of debt alleviation and announced that the UN is establishing a multi-partner Trust Fund for ‘COVID-19 Response and Recovery’. In an attempt to cope with the impacts of COVID-19, the United Nations referred to the 2030 Agenda and the 17 Sustainable Development Goals to bring the following measures[8]:
- Regional mobilization to examine monetary coordination, fiscal and social measures while engaging with private financial sector to support businesses and addressing structural challenges
- National solidarity and social cohesion to provide fiscal stimulus to vulnerable groups, developing nations and small and medium sized enterprises
- $1 trillion liquidity injection by reallocating existing drawing rights at the IMF
- Debt jubilee for distressed economies under which $1 trillion in debts owed stand cancelled for the year
- $500 billion Marshall Plan for health recovery
In the conclusion to his address António Guterres emphasized the importance of building inclusive and sustainable economies that will be more resilient in facing and combating pandemics, climate change and any other global challenges. He said that the efficacy of the response to this pandemic would be judged not by the actions of a single government but by global coordination and solidarity.
[1]Milton Ezrati, First Statistical Signs of the COVID-19 Recession, Forbes (April 1, 2020, 12:24 PM), https://www.forbes.com/sites/miltonezrati/2020/04/01/first-statistical-signs-of-the-covid-19-recession/#6ba7639f999e.
[2]Press Trust of India, Global Economy could shrink by almost 1% in 2020 due to COVID-19 pandemic: United Nations, Economic Times (April 2, 2020, 11:20 AM), https://economictimes.indiatimes.com/news/international/business/global-economy-could-shrink-by-almost-1-in-2020-due-to-covid-19-pandemic-united-nations/articleshow/74943235.cms.
[3]António Guterres, The recovery from the COVID-19 crisis must lead to a different economy, United Nations (March 31, 2020, 7:08 PM), https://www.un.org/en/un-coronavirus-communications-team/launch-report-socio-economic-impacts-covid-19.
[4]UN News, UN Launches COVID-19 Plan that could ‘Defeat the virus and Build a Better World, United Nations (March 31, 2020, 9:33 PM), https://news.un.org/en/story/2020/03/1060702.
[5] United Nations, Coronavirus could cut global investment by 40%, new estimates show, United Nations Conference on Trade and Development, (March 26, 2020, 8:18 PM), https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2313.
[6]United Nations, COVID-19: Putting People First, United Nations World Tourism Organisation, (April 1, 2020, 8:18 PM) https://www.unwto.org/tourism-covid-19-coronavirus.
[7]Supra note 3.
[8]Press Trust of India, COVID-19 Impact: World Economy to go into Recession Except India and China, UN says, Bloomberg, Quint, (March 31, 2020, 6:48 PM), https://www.bloombergquint.com/business/covid-19-impact-world-economy-to-go-into-recession-except-india-and-china-un-says.
- COVID-19
- Recession
- Lockdown
