Global economic recovery calls for solidarity

The deadly COVID-19 pandemic has shaken up the world on both the health and economic fronts.

The World Bank’s prediction in its latest Global Economic Prospects report that the pandemic will shrink the global economy by 5.2 per cent this year, representing the deepest recession since World War Two is extremely worrisome as it will also trigger a dramatic rise in extreme poverty.

In rich countries, economic activity is expected to decline by seven per cent as the coronavirus outbreak severely disrupts domestic demand and supply, trade and finance activities.

Emerging market and developing economies are due to shrink by 2.5 per cent – their first contraction as a group in at least 60 years. Per capita incomes, meanwhile, are forecast to fall by 3.6 per cent – tipping millions into extreme poverty.

Hardest hit are those countries where the pandemic has been most severe and where there is a heavy reliance on global trade, tourism, commodity exports and external financing.

This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges, as pointed out by Ceyla Pazarbasioglu, the World Bank Group’s Vice President for Equitable Growth, Finance and Institutions.

On another front, the US economy is reported to have entered recession in February.

As per the Business Cycle Dating Committee of the National Bureau of Economic Research, The US economy ended its longest expansion in history in February and entered recession as a result of the coronavirus pandemic.

The committee members concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.

The designation is on expected lines, but noteworthy for its speed, coming a mere four months after the recession began.

The committee has waited longer before making a recession call in order to be sure. When the economy started declining in late 2007, the group did not pinpoint the start of the recession until a year later.

The pace of the recovery will be important in determining whether the current recession has the same lasting impact as past downturns.

The 2007 to 2009 recession was associated with a permanent loss of several hundred thousand blue-collar manufacturing jobs, sustained long-term unemployment, and years of weak wage growth for middle- and lower-income families.

The impact of the pandemic has been such that no area seems to be spared.

According to the Global Economic Prospects report, the United States economy is forecast to contract 6.1 per cent this year, while euro zone output is expected to shrink around 9.1 per cent. Japan’s economy is anticipated to retreat 6.1 per cent.

Elsewhere, growth is forecast to decline 7.2 per cent in Latin America and the Caribbean, 4.7 per cent in Europe and Central Asia, 4.2 per cent in the Middle East and North Africa, 2.8 per cent in sub-Saharan Africa (the deepest on record), 2.7 per cent in South Asia and 0.5 per cent in East Asia and the Pacific (the lowest rate since 1967).

The solution, in the words of World Bank Group President, David Malpass, is: “Policy choices made today – including greater debt transparency to invite new investment, faster advances in digital connectivity, and a major expansion of cash safety nets for the poor – will help limit the damage and build a stronger recovery.”