Global Economy and COVID-19

Global Economy and COVID-19

Coronavirus outbreak was first reported in Wuhan, China on 31st December, 2019. Since then, more than 1.86 lacs people have lost their lives and more than 26 lacs people have been infected.

Coronavirus (CoV) is a large family of viruses that causes illness. It ranges from the common cold to more severe diseases like Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). The novel coronavirus is a new strain of virus that has not been identified in human so far.

WHO is working closely with global experts, governments and other health organisations to provide advice to the countries about precautionary and preventive measures.

We can’t ignore the fact that the outbreak of COVID-19 in China is expected to have a significant impact on the economy globally including economic slowdown, trade, supply chain disruption, commodities, and logistics.

Impact on Chinese Economy

The GDP of China is expected to decelerate by 1-1.25 percentage points over 2020 because of less production. In China, various cities and provinces are in lockdown mode. China accounts for approximately 19.71% of global GDP at purchasing power parity and obviously it will impact the economy globally. Therefore, it is estimated that the global GDP will suffer an impact of around – 0.5%.

In terms of trade, China is the world’s largest exporter and second-largest importer. It accounts for 13% of world exports and 11% of world imports. The lockdown will affect around 500 million people in the country that will deeply impact its consumption of goods.

Impact on Indian Economy

Up to a large extent, it will impact the Indian industry. In imports, the dependence of India on China is huge. Of the top 20 products (at the two-digit of HS Code) that India imports from the world, China accounts for a significant share in most of them.

India’s total electronic imports account for 45% of China. Around one-third of machinery and almost two-fifths of the organic chemicals that India purchases from the world, come from China. For automotive parts and fertilisers China’s share in India’s import is more than 25%. Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain mobile phones come from China to India.

In terms of export, China is India’s 3rd largest export partner and accounts for around 5% share. The impact may result in the following sectors namely organic chemicals, plastics, fish products, cotton, ores, etc.

We also can’t ignore that most of the Indian companies are located in the eastern part of China. In China, about 72% of companies in India are located in cities like Shanghai, Beijing, provinces of Guangdong, Jiangsu, and Shandong. In various sectors, these companies work including Industrial manufacturing, manufacturing services, IT and BPO, Logistics, Chemicals, Airlines, and tourism.

It has been seen that some sectors of India have been impacted by the outbreak of coronavirus in China including shipping, pharmaceuticals, automobiles, mobiles, electronics, textiles, etc. Also, a supply chain may affect some disruptions associates with industries and markets. Overall, the impact of coronavirus in the industry is moderate.

According to CLSA report, pharma, chemicals, and electronics businesses may face supply-chain issues and prices will go up by 10 percent. The report also says that India could also be a beneficiary of positive flows since it appears to be the least-impacted market. Some commodities like metals, upstream and downstream oil companies, could witness the impact of lower global demand impacting commodity prices.

Therefore, we can say that due to the current outbreak of coronavirus in China, the import dependence on China will have a significant impact on the Indian industry.

According to CII, GDP could fall below 5% in FY 2021 if policy action is not taken urgently. It is said that the government should take some strong fiscal stimulus to the extent of 1% of GDP to the poor, which would help them financially and also manage consumer demand.

In the third quarter (October-December) growth is slowed down to 4.7% and the impact of COVID-19 will further be seen in the fourth quarter. Some exports have indicated Indian economy would grow at 2% in FY 2020-21.

FICCI survey showed 53% of Indian businesses have indicated a marked impact of COVID-19 on business operations. And 42% of the respondents said that up to three months could take for normalcy to return

Impact on Nepali workers in India

Most of the Nepali workers are into hospitality, Hotel & tourism, small scale manufacturing start-up and other unorganised sector in India. Since 53% of the industry will have impact of COVID-19, huge no of Nepali workers in India will be at rick of loosing employment/jobs.

Impact on Nepali Economy

The persistent drumbeat of positive tests and reported deaths in other countries due to

novel coronavirus (COVID-19) has created widespread concerns in Nepal also. Nepal is starting to suffer the most abrupt and widespread cessation of economic activity due to outbreak of this virus. As per the analysis by the Asian Development Bank, the outbreak of this deadly disease will hit almost every sector of the Nepali economy, shaving up to 0.13 per cent off the gross domestic product and rendering up to 15,880 people jobless.

The impact has already started to surface in number of sectors like tourism, trade and production linkages, supply and health. Especially the entire service industries: tourism, aviation and hospitality sector have been hit hardly by the outbreak. With the launch of visit Nepal 2020 campaign in January, the country was in hope to attract two million visitors, but due the corona pandemic the campaign got cancelled which has shattered the hospitality and tourism related business sector. With this the tourist arrival rate has declined to below 10 percent, from 70 percent before the Covid-19 outbreak. Tourism sector, being one of the largest industry has been contributing 8 percent to Nepal’ s economy. Likewise, cancellation of all spring mountaineering expeditions, including Everest ascents, has resulted job loss of around 13,000 tour, trekking and mountain guides. The outbreak has affected people’s lives as well as private and public sectors. Banks are suffering in loss of their investments in hospitality and aviation due to the coronavirus tourist slump. Not only this, the impact has been also visible in the manufacturing industries. As most raw materials including pharmaceutical chemicals come from China, supply of these raw materials has decreased drastically.

Tourism was expected to drive Nepal’s economic growth and contribute greatly to the high growth target of 8.5 percent that the government had set for this year, but this industry tends to have little financial cushion. The contribution of the tourism sector to Nepal’s economy stood at 7.9 percent in 2018, according to the report prepared by the World Travel and Tourism Council, which represents the private tourism industry and counts more than 200 company members.

The coronavirus outbreak threatens to delay the completion of several infrastructure projects in Nepal. The construction of Pokhara International Airport, Gautam Buddha International Airport, and Melamchi Drinking Water Projects are being greatly affected due to the absence of Chinese workers. These projects are built by Chinese firms and the majority of their staff are Chinese nationals.

Foreign employment has not only been addressing the Nepal ’s unemployment issues but has also been contributing significantly to the country’s economy in the form of remittance In these two months the remittance source has been contributed less than 1 percent in country’s economy. The downturn in remittance has created severe impact on overall consumption in the country. Foreign employment is a major source of remittance in Nepal, too. In the current situation, coronavirus’ effect on remittances is disastrous. Remittances contributed 26 percent to the country’s GDP last year. According to a report, during the first four months of the current fiscal year, Nepal received more than 50 percent of its total remittance from countries like Qatar, Saudi Arabia, Kuwait, the United Arab Emirates, and Bahrain.

The wholesale and retail sector is the second largest contributor to the economy, after agriculture. The sector contributes 14.37 percent to the economy, which is already being affected by the drastic downfall in imports from China following the outbreak of the disease. While these are the prevailing state, looking ahead there is also a high risk of general inflation. In the situation of limited supply from China, Nepal may have to import from third countries, which results the products to become more costly.

The situation is alarming. Although we are yet to experience full impact and aftermath of the coronavirus, this worldwide threat has already created economic uncertainty among all of us. People are worried as still we don’t know much about this deadly virus and how deep and widespread the economic fallout will be.

Nepal Rastra Bank, the central bank of Nepal, in its Mid-Term Review the 2019-20 Monetary Policy said that the spread of coronavirus, along with low paddy production this year, would have a bad impact on our economy.

People are worried as still we don’t know much about this deadly virus and how deep and widespread the economic fallout will be. It is still hard to predict. It will be sometime before we can estimate the full economic blow from this virus. Historical experience suggests that the rebounds from this kind of output loss are possible, but it takes time. Nepal is also facing a drop in output unprecedented in its intensity and the rebounds from this kind of loss are possible, but not by any means guaranteed.

Impact on Global Economy

As the coronavirus pandemic rips through countries, it’s upending everything in the global economy from junk bonds to prices for orange juice. Governments are shutting down whole commercial sectors to stop the spread of Covid-19, putting a massive crimp in gross domestic product for months to come.

Stocks have slid and oil crashed, but orange juice has emerged as the biggest winner among commodities. OJ futures, which allow traders to hedge or speculate on prices for some later date, have soared as consumers stay home amid social distancing measures. (Consumers may also be seeking out orange juice because it contains vitamin C, in hopes that it will give their immune systems a boost.)

Crude oil is getting hit with a double a whammy: A price war between Saudi Arabia and Russia caused prices to plunge earlier this month, and energy prices typically decline when economic activity slows.

A free fall in global stock markets appears to have been arrested, for now, as governments assemble immense aid packages to support their economies. Officials are planning to spend and lend more than $4 trillion to help workers and preserve industries that have gone into hibernation.

Joblessness has spiked as businesses such as restaurants and hotels shutter, with weekly unemployment claims setting a record in the US. What makes the coronavirus-led recession different from those that came before it is the speed of the disruption. More than 10 times as many unemployment claims were filed in the US during the 2008 downturn, but this time it’s happening much more quickly.

Economists are dialling back their forecasts for GDP. Most of the world’s economies will grow less this year than in 2019, according to the OECD. The scope for GDP to snap back depends greatly on governments’ ability to contain the pandemic.

The coronavirus pandemic is a health and economic crisis, and that’s placing immense strain on the world’s financial system. While major banks were heavily fortified after the crisis in 2008, markets from junk bonds to some types of mortgages have shown signs of buckling as investors flee anything with a hint of risk.

At last ,i wish happy new year 2077 to all the readers, may god Pashupatinath give us energy to fight and win over pandemic COVID-19.

Source: Asian Development Bank & WHO etc