The on-going health crisis has taken the whole world by shock, signifying the fragility of human life. The COVID-19 outbreak has affected around 213 countries around the world, forcing them to impose nationwide lockdowns to flatten the curve and shutting down businesses essentially closing down all economic activity.
The WTO said global trade would fall this year by between 13% and 32%, giving a wide range because so much about the economic impact of the health crisis was uncertain. At the height of the financial crisis in 2009, trade dropped 12.5% (Blenkinsop, 2020).
Falling commodity prices, decreasing tourism revenues, drop in foreign investments and struggling stock markets plague all economies. According to the latest IMF forecast, the global economy is expected to shrink by three percent. Governments across the globe are preparing to boost their economies whilst fighting the health crisis, massive stimulus packages worth billions and trillions have been announced by countries to induce in order to boost the economy.
Economic responses of some of the world’s major economies influenced by the pandemic
United States, the current epicentre of the outbreak with over 1.80 million confirmed cases, and in order to safeguard the socio-economic conditions of the nation, the government has announced a historic economic package of $3 trillion dollars, around 15 percent of the GDP. Out of which a fund of $500 billion is allocated to assist struggling industries as well as direct payments up to $1200 per adult and $500 per child for millions of U.S families. Along with this additional payment of $600 per week has been added for workers who have lost their jobs under unemployment insurance. Another fund of $484 billion has been allocated for small businesses and hospitals to improve the health facilities. Credit interest rates have been reduced in order to increase liquidity and money supply in the economy.
The Eurozone, already going through one of their deepest recession, has announced a stimulus package worth $3.5 trillion. Furthermore, Member States have so far committed to provide liquidity support for sectors facing disruptions and companies facing liquidity shortages, consisting of public guarantee schemes and deferred tax payments, which are now estimated at 16% of EU GDP, up from 10% on 16 March. (European Union, 2020). The European Central Bank has stepped in and implemented various monetary measures. On 18th March, the ECB decided to launch a EUR 750 billion Pandemic Emergency Purchase Programme (PEPP), to expand the range of eligible assets under the corporate sector purchase programme (CSPP) and to ease the collateral standards (European Union, 2020).
United Kingdom is facing one of its most difficult economic times, with the biggest plunge in the GDP in three centuries and over 282,000 confirmed coronavirus cases. The government is undertaking emergency measures; a £100 billion package of immediate fiscal spending with includes higher welfare spending, tax reductions and grants for SMEs. The Bank of England has made two emergency cuts, first on March 11 – dropping the rate from 0.75 to 0.25 percent, and again on March 19, to the current rate of 0.1 percent (Chan, 2020).
China, the world’s second-largest economy as well as the place where COVID-19 is claimed to have originated, has announced around $576 billion as fiscal stimulus. In order to increase liquidity in the market, the government ordered banks to extend loans and ease the rules for borrowers while also rolling out debts. Tax relief measures and reduced power charges are also introduced to support SMEs.
Another major South Asian country India and also the world’s second-largest populated country imposed a pandemic triggered lockdown which had severely impacted the economy. India Ratings and Research have further cut FY21 GDP growth forecast to 1.9 percent, which will be the lowest GDP growth in the last 29 years. On March 24, 2020, the government announced a relief package of $22 billion worth 10 percent of the GDP, includes direct payments to farmers, senior citizens, widows and disabled. The government has taken liquidity measures such as reduced repo rate and credit rate to induce around $63 billion in the system. Along with these, relief measures have been implemented for MSMEs from collateral-free loans to subordinate debt to provide equity support to stressed MSMEs.
Globalization has levelled the playing field for all countries but at the same at has increased the risks by integrating the economies together. Although internationally imposed lockdowns have helped affected countries in containing the virus, yet it has also caused short-term economic losses, with a decline in supply and decline in global trade. The global economy is constrained, with financial disruptions and fiscal cost of rescue and relief is definitely going to burden the governments, increasing their budget deficits. But at the same time, it is the need of the hour, it is essential for governments to step up to revive their domestic economy and subsequently the global economy. WTO and IMF have stressed on the importance of open trade policies and suggested the countries worldwide to reduce trade barriers as well as investment restrictions; it would help in restoring jobs and promoting economic growth in the future. It would also ensure the availability of advanced medical products available throughout the world. They have advised nations to work in global cooperation and help the severely affected poor countries as well to ensure all-round economic development of the global economy.