Muhammad Mahmood |
July 11, 2020, 10:29 p.m.
July 29, 2020 9:04 p.m.
Economic uncertainties continue to hold back global economic growth. At the end of last month, the International Monetary Fund (IMF) further lowered the projection for global economic growth – a contraction of 4.9% in 2020, about 1.9 percentage points below the forecast for the quarter. April. In addition, the recovery in 2021 would be slower than forecast in April’s forecast and in the same year, global GDP would be down 4% from its 2019 level as long as there is no no second wave of Covid-19 infections. The IMF further warned that a cumulative impact on the global economy would be $ 12 trillion over 2020-2021.
The IMF further indicated that for the first time, almost all regions of the world are expected to experience negative growth in 2020. Emerging markets and developing economies except China are expected to experience a greater impact on growth. of GDP than advanced economies in 2020-2021. Growth forecast for this region is expected to be -3 percent this year, 2 percentage points lower than the April forecast. It is indeed a global crisis which translates into a risk of slowing down or even reversing the process of poverty reduction observed in recent years.
He further noted that the sharp decline in economic activity had caused a catastrophic blow to the global labor market and estimated that job losses could amount to 300 million in the second quarter of this year. The impact of the crisis, in particular, is strongly felt by low-skilled workers who do not have the opportunity to work from home. According to the International Labor Organization (ILO), nearly 80 percent of the estimated 2 billion workers in the informal sector have been affected. This will have a negative impact on low-income households, which will further significantly worsen income inequalities.
The crisis now exposes the existing glaring inequalities. Covid-19 has hit the poorest segments of the population the hardest, which is why they mainly bear the brunt of the economic consequences of the pandemic. At the same time, these low-skilled workers do not have the opportunity to work from home, exposing the digital divide at a time when the process of digitization of the global economy is accelerating.
The report, while acknowledging that monetary and fiscal actions have been effective in helping prevent a massive wave of bankruptcies and unemployment, but at a huge cost where fiscal actions now stand at around US $ 10.7 trillion ; and monetary policy measures amount to over US $ 6 trillion. It is a response like no other to a crisis before. Of particular concern is debt-financed spending in the current situation, but it is a necessary step in the right direction to mitigate the economic consequences of the pandemic.
In addition, the latest report released by the Organization for Economic Co-operation and Development (OECD) in June ruled out any possibility of a V-shaped recovery for developed economies from the consequences of restrictions imposed in the aftermath of Covid-19 . The OECD covers 33 economies. Its chief economist, Laurence Boon, said economic activity collapsed across the OECD when some countries shut down 20 to 30 percent and that it was a extraordinary shock.
Developing economies have also been shaken by falling commodity prices, large capital outflows and falling remittances. Migrant remittances are estimated to have declined by almost a quarter during the pandemic around the world. Migrant remittances represent 9 percent of Bangladesh’s GDP and most of these remittances come from the United States, the Gulf States, the United Kingdom and a few other European countries. All these countries are now at various stages of containment negatively impacting their economic activity. The Gulf countries in particular are affected by falling oil prices. Even more alarming, it is estimated that the number of people currently living with acute hunger could double by the end of 2020, raising fears that the Covid-19 pandemic could turn into a hunger epidemic.
The OECD report projects two scenarios; one in which the virus recedes and remains under control and the other where a second wave erupts later this year. Under these circumstances, economic activity does not and cannot return to normal. The report further adds that in a “one-shot” scenario, global GDP is expected to decline 6 percent this year and in a “double-blow” the contraction will be 7.1 percent this year.
The OECD report also highlighted the areas most affected in terms of employment, including tourism, leisure and entertainment. But there has been a noticeable drop in spending on durable consumer goods, investment spending. In addition, the volume of trade has contracted. These obviously have an impact on the transport sector as evidenced in particular by the drop in global air freight traffic.
There is also a growing disconnect between the real economy and financial markets. In many cases, equity markets have rallied close to pre-pandemic levels, exposing this disconnect from the real economy. Faced with uncertainties over the economic outlook linked to Covid-19, investor confidence is shaken. Closing borders to stem the spread of the virus also comes with additional restrictions on trade and investment flows. This situation will continue until the virus outbreak is contained. However, government measures across the world have been successful in many countries in flattening the curve of the virus, but it has also caused a freeze in economic growth as well as income inequality.
As debt levels increase, corporate and household insolvencies, as well as the increase in the number of businesses, could put pressure on the banking system and fuel a financial crisis. In addition, pre-existing financial weaknesses are also exposed by the pandemic. Financial market analysts are increasingly concerned that there is the potential for a financial crisis if the Covid-19 pandemic crisis is left unchecked.
Given the uncertainty about the normal functioning of the economy, an accommodating monetary policy as well as supportive budgetary measures are necessary. The US Federal Reserve has already signaled to keep interest rates at zero until the end of 2022. The reason for such an extraordinary step, which goes far beyond what it did for the financial crisis Global (GFC) 2007-08, should be considered necessary. to move the economy forward. In addition, most countries around the world have introduced a series of fiscal and monetary measures to contain and mitigate the impact of the Covid-19 epidemic.
A developing economy like Bangladesh depends on international trade in goods and services and the flow of investment capital to maintain its growth momentum. The current disruption of existing international trade and financial structures is not only due to the pandemic, but also caused by the trade and technology disputes between the United States and China, the trade disputes between the United States and the EU, the Brexit and tensions resulting from other global geopolitical factors. These factors negatively impact business and consumer confidence, which can hinder the achievement of desired economic outcomes.
The economic and social consequences of the pandemic for the impoverished masses of Bangladesh can be quite devastating. As of July 9, in Bangladesh, 175,494 cases of Covid-19 have been reported with 84,544 deaths and only 907,784 tests have been performed (FE, July 10). Due to the poor and inadequate healthcare system along with inadequate testing and reporting, the extent of the pandemic’s spread is likely to be much greater than official figures indicate.
Many analysts fear a post-Covid-19 world that will be poorer and more messy. More alarmingly, they also believe it will spawn a period of instability comparable to the Great Depression leading to World War II. A recent UNICEF report says the lives and futures of children across South Asia, of which Bangladesh is a part, are being torn apart. The report adds that due to the pandemic crisis, the number of children living in poverty could increase from 120 million to over 360 million within six months in the region. including Bangladesh.
In this highly uncertain global economic and political environment, it is essential that their potential impact on Bangladesh’s economy be minimized through sound economic policies and disciplined management of public finances. In particular, expenditure financed by debt should be well targeted and ensure its transparency and equity. At this critical period in the country’s history, this will require appropriate fiscal and monetary measures that will allow efficient allocation of resources, investments and productivity gains as well as well-targeted public spending and a streamlined tax regime.