The unknown unknown (things\nwe don\u2019t know that we don\u2019t) novel coronavirus coined as Covid-19 was not seen\ncoming from anyone. It is an exogenous shock affecting the fundamentals of the\nworld economy. The health turned economic crisis will have a pivotal economic\nfallout, affecting the demand and supply chain. According to the IMF, we have\nalready entered a recession that will be worse than 2009. The human cost of the\npandemic is increasing at an alarming rate, and the priority of the nations is\nto keep their people safe and healthy. It is a wake-up call for the entire\nworld which needs to strengthen its public health infrastructure by building\nlong-term investments for stronger and resilient public health systems. The\nrelationship between the Covid-19 mortality rate and per capita GDP is positive\nand significant. Thus, it is important to develop an alternative understanding\nof this, especially for poor countries. <\/p>\n\n\n\n
Economic fallout: <\/strong><\/p>\n\n\n\n Supply perspective<\/em><\/strong>: <\/em>A decline in the labor\nsupply and capacity utilization for lockdown and quarantines has disrupted the\nglobal supply chain. Services and manufacturing have declined drastically with\nservices hit much harder than manufacturing. This has increased business costs\nand inducted economic activity with negative productivity shock. Firms are\nexpecting lower demand for exacerbating consumer and business sentiments. This\nreduces investment and spending leading to business shutdown and job losses.\nThe banks will then suspect the inability of firms and consumers to repay their\nloans timely, which can increase the borrowing cost and tighten financial\nconditions. This reduced credit will escalate the downturn of demand and supply\nshocks. The international trade and financial linkages can synchronize the\nshocks, dampening the economic activity, and reducing commodity prices. Oil\nprices have also fallen sharply by around 30 percent from their initial price\nat the start of the year. <\/p>\n\n\n\n Demand perspective<\/em><\/strong>: <\/em>The contagion fear, increased\nuncertainty and loss of income make people spend less. Firms cannot pay\nsalaries and thus lay off their workers. Thus, the disposable incomes of the\nhousehold will fall. The airline industry can go bankrupt by May 2020 as their\nstock prices fell in line with the 9\/11 terror attacks, due to declining\ndemand. Countries relying on external financing will face a sudden stop, which\ncan disorder the market conditions. The Marginal Propensity to consume will\nfall due to lower consumer confidence, and this will reduce the multiplier.\nWith the reduction of MPC, the infusion of money in the economy will not add to\nthe national income if the MPC has disproportionately fallen. <\/p>\n\n\n\n Fiscal stimulus <\/strong>can shield the economic\ndamage. It can be on a range of policies which should immediately prioritize\nhealth spending. Businesses and households hit by a drop in demand and supply,\ncan get wage subsidies, direct cash transfers and tax reliefs, helping people\nto stay buoyant. This also brings us to the sheer truth of the large\nunorganized sector of various developing (India) and under-developed (Africa)\ncountries who face difficulties in enjoying such a stimulus package. Thus, it\nteaches us a lesson to bring people under the organized sector with employment\nprotection. The government can also enhance unemployment insurance, and wave\noff social security conditions for businesses. <\/p>\n\n\n\n Monetary stimulus <\/strong>by central banks should\nimpart liquidity to banks and nonbank financial companies, particularly the\nMSMEs. Temporary extension of loan maturities in the financial market on a\ntime-bound basis can protect businesses from sharp disruption. Policy rate cut and\nasset purchases can lift the confidence of the financial market. An easing of\nfinancial conditions such as the flow of credit in the economy can support\ndemand. Many major central banks have eased swap lines to reduce the stress of\nglobal financial conditions. <\/p>\n\n\n\n In their book Good\nEconomics For Hard Times<\/em>, Banerjee & Dufflo (2020) have written on what\nthe social scientists call a natural experiment: influenced by nature or\nfactors beyond the researcher\u2019s control. They\u2019ve cited an evidence-based study\non the difference between the lifestyle of people before and after the volcanic\neruption in Iceland. Similarly, nature has thrown the dice of this virus and,\nwe have to wait and see the difference between an ex-ante and ex-post world.\nBut certainly, there will be an imperative difference afterward. <\/p>\n","protected":false},"excerpt":{"rendered":" The health turned economic crisis will have a pivotal economic fallout, affecting the demand and supply chain. According to the IMF, we have already entered a recession that will be worse than 2009.<\/p>\n","protected":false},"author":30,"featured_media":114614,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","footnotes":""},"categories":[22],"tags":[285,292],"class_list":["post-114602","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-global-economy","tag-covid-19","tag-economic-impact-of-corona-virus"],"yoast_head":"\n
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\nWhat\ncan be done? <\/strong><\/p>\n\n\n\n