How covid 19 affect global economy.

Sharique Zia 2 April 2020

As we are all fighting the pandemic, there is one more thing that is struggling for survival WORLD ECONOMY!

International Monetary Fund (IMF) has declared that due to lockdowns because of Covid-19 the Global Economy is now in recession. Recession in 2020 is predicted to be worse than the 2008 financial crisis, to the extent that it can also prove to be worst economic recession in past 100 years after the great depression of 1930s.

For comparison, the Global crisis of 2008 saw the worldwide GDP fall of mere 1o/o , while the great depression witnessed a fall of 15o/o. But most economists are of the opinion that this time the condition is going to be worse than the recession of 2008.This is already highlighted in data. For instance, consider the example of France wherein the quarterly GDP growth rate of first 3 months has been calculated to be minus 6o/o and the predicted GDP Growth rate of second quarter in Germany would be minus 10o/o. Compared to the 2008 recession there some critical differences that can be observed in the present situation, one of which is the inactive working population due to lockdowns. During the recession of 2008, there were some major reasons which caused the turmoil, but on the whole economy was still running as people were working which is not possible currently. Although many companies, majorly in the technology industry, have adopted the policy of work-from-home to keep the company running, but this cannot be considered as the appropriate solution for all the industries. Sports industry, Travel and Aviation industry, Film and Entertainment industry, Restaurant industry, are some which are the hardest hit. On the other side there has been tremendous growth in apps like zoom video app, Skype and Google hangouts which are helping people communicate. Netflix, Amazon Prime and online gaming are among the few sectors that have profited.

If multiple sectors become inoperative, then barring a few companies almost all will incur losses and to minimize the losses, the companies would resort to cutting down the expenses, primarily by cutting the salaries of the employees or by laying them off. For example, Tesla has slashed the salaries of all their employees by 10o/o, Marriot the worlds largest hotel company, slashed the salaries of their senior executives by 50o/o and laid off approximately 10,000 workers from their jobs temporarily. The international labour organization has predicted that 38o/o of all employees in the world are either at risk of layoff or a salary cut detailed report of which can be viewed here:

https://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/briefingnote/wcms_740877.pdf

Coming to the impact on future there is high expectation of innovation in the sectors wherein work-from-home is possible which includes technology and education industry during this recession. The businesses are trying to come up with a model that can sustain even in future helping them cut cost even further, encouraging the development of web based learning system. Along with this, automation sector can also see a boom as the manufacturing industry realizes the importance of machines for production. Many economists are of the view that all the prior recessions in the world have been due to some structural economic problem, but this recession is due to voluntary choice where the countries have themselves decided to implement lockdowns. As soon as the countries remove the lockdowns, the people will resume their jobs and then situation to revert to normal. Observing historically, whenever recession has struck, the economy has always bounced back, which indicates that in long term the economy remains stable. The countries have also announced economic relief packages to support their nationals during this short term crisis which demonstrates that governments across the world still hold the power to change the economic conditions by their wise decisions.

Business Partner and Sponsor