IT has been a crisis like no other, shutting shops and schools, closing borders and putting half of humanity under some form of lockdown during the spring of 2020. And it’s not over. It has left its footprints in our life which still continue to haunt us and has changed our life, perhaps for years to come, after millions fell victim to this deadly virus.(man-made or natural, only God knows.
What the Corona virus pandemic has done to the global economy so far, and what might lie ahead is a very relevant question. According to Nariman Behravesh, Chief Economist at the consulting firm IHS Markit, “It has certainly plunged the world economy into a very deep but mercifully a short recession. Everybody’s been hurt. I don’t think anybody’s really been spared by this – it’s a combination of fear, uncertainty and the reaction to the lockdowns. Now, a lot of people blame this deep recession on the lockdowns, but I don’t think that’s a fair assessment. If you look at a country like Sweden, even though they didn’t do a lockdown, their economy still suffered pretty severely. It is mostly the uncertainty and the fear of catching the virus that is stopping consumers going to the places they normally would, and that’s hurting the economy”.
Looking at historical precedents, it’s about three times as bad as the global financial crisis of 2008 in terms of GDP decline on an annual basis. It’s not quite as bad as the Great Depression in the 1930s, where the output drop was sustained over a three to four-year period, and the unemployment rate went up to 25% in the US. This time so far it only went up to 13% in the US, but it’s the worst downturn we’ve had globally since the 30s. In some sense, the worst may be behind us. In many parts of the world, in many countries the numbers are coming down – although not everywhere. They’re going up in India, they’re going up in Brazil, they’re really not coming down much in the US. So probably globally, the worst is behind us. But you can also argue that the easy part is behind us, because this thing is going to flare up again and again. We’re not out of the woods. So even when we think we’re done, as a number of countries have, we’re not. It probably won’t be as bad as it was last round, in part because the healthcare systems are prepared, but we’re not done with this.
Let’s look at countries first. Among the countries that have weathered it well is, of course, China. China technically did not have a recession. It had one quarter of negative growth and then it came right out the other side. Other countries that have done relatively well are South Korea and Taiwan which did a lot of testing and tracing so they managed to keep things under wraps compared to the countries that have done the worst in terms of the virus, such as the US, Brazil and India. That judgement is based on the total number of deaths. But for the death rates, if you look at it on a per capita basis, the US is number 10 rather than one, which is lower than Belgium or Spain, so a lot depends on how you measure it.
In terms of economic performance, Europe has been hit quite hard – the European recession is quite a bit deeper than the US or Canadian or Japanese recession. So, Europe and the emerging world have been hit pretty hard. We’re coming out of a very deep recession, so we’ll get what we call a technical bounce and fade pattern of growth throughout the world. Bounce is because it went so far it had to come up – but it won’t continue at that strong rate. Just to give you a sense of the US, GDP was down 32% in the second quarter of 2020 but it came up 30% in the third quarter, but by the fourth quarter it was back down to 2.5%.
The hardest hit were activities/businesses that depended on large groups of people coming together in a spot, so airlines are a perfect example of this. Air traffic was barely at 25% of what it was at the end of 2019. But it has since recovered and rebounded robustly. Hotels are another example. And there are huge amounts of excess capacity on cruise ships. Anything to do with conferences was also hit hard. In terms of the industries that have done well, high tech is of course an example. Obviously, everybody was ordering from Amazon rather than going to stores but beyond that a lot of industries were looking to accelerate the digital revolution. Ironically, healthcare is also benefiting in some sense, because of the demand.
One sector that has done well, to the surprise of many, is housing. Why would housing boom? It is in the US, maybe less so elsewhere. Basically, a lot of people are fleeing to suburbs. A lot of people are buying homes and building homes. One reason could be the low inventory as construction of houses was at almost zero during the pandemic. Apart from Taiwan and South Korea, the rest of the emerging world, from Latin America to Africa, are struggling, there’s no question. Aside from the virus itself, they were hurt by collapsing global growth and trade and for a while, the collapse in commodity prices. It’s not only the virus itself but events outside of their countries that are then coming back to hurt them.
So is it going to be business as usual in the post-Covid 19 times? Many think that there are going to be some big, big changes happening. We may not see them overnight. It may take some time. But let’s go through a few of them. Post-Covid era will accelerate the movement towards a green economy. This is a perfect opportunity for a lot of companies as they look at new, green technologies. I think that’s going to be very positive. But we are going to see a substitution of capital for labour. Skill and labour-intensive industries are very worried about the vulnerability to viruses of all kinds, so you’ll see greater emphasis on robotics which creates its own challenges, of course.
Some think that the process of urbanization will slow. It may not reverse, but it will definitely slow down. We’ve seen this so-called flight to suburbs occurring, earlier. Separately, in terms of the travel and tourism industry, one has to wonder what will come out the other end. Best guess that things like business travel will be curtailed quite dramatically, was partially correct and has since improved, substantially. A new phenomenon of work from home has dominated in the post-Covid scenario and is getting a boost. Healthcare is another area where we will see some massive transformations as we go forward.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration.
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