Is virus going to kill world economy? / News / News agency Inforos
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Is virus going to kill world economy?

Quarantine restrictions adopted by the governments have a negative impact on production and world trade

Is virus going to kill world economy?
Context:

On March 11, the World Health Organization recognized the spread of COVID-19 coronavirus as a pandemic. As of March 15, the total number of people infected around the globe exceeded 168 thousand people, including 72,649 people outside of China. The virus spread to more than 143 countries, with a death toll over 6.5 thousand people. The epidemic center moved from China to Europe, making Italy the largest site of infection outside China. In Italy, Spain and the Czech Republic, a national quarantine has been enforced. A number of countries, including the United States, are under a state of emergency.

One of the most "popular" methods of fighting infection is the so-called "social distancing", which involves the cancellation of cultural events, a partial transfer of employees to home office format, a complete or partial ban on the entry of foreigners, the cancellation of various mass events, the shutdown of schools, universities, nursery schools, travel constraint. However, these measures have so far failed to stop the coronavirus spread.

Incredible as it may seem, within the given scenario, China, being the epicenter of the coronavirus outbreak, is becoming a pocket of relative tranquility. The number of ill people decreases with every passing day, and 82.7% of those infected have been discharged from hospitals. Japan and South Korea are also gradually recovering, with their well-organized preventative measures and without tantrums like in Europe and the United States.

Quarantine restrictions adopted by the governments have a negative impact on production and world trade, destroying engineering, manufacturing and supply chains and provoking failures in a number of industries where enterprises depend on foreign companies' supplies. Thus, according to UNCTAD estimates, since the beginning of the year, the volume of China's production and exports has decreased by 13.5% and 17.2% respectively. As a result, that country's trading partners recorded the following losses: $5.8 billion in the US, $5.2 billion in Japan, $3.8 billion in South Korea, $15.6 billion in the EU. As can be expected, the nearest future will see problems at the consumption level, because "social distancing" measures inevitably affect both the structure and volume of consumption.

All this increases the risk of a recession. "We are going into a global recession," former ECB Vice President Vitor Constancio wrote on Twitter. "The necessary measures to contain the spread of the virus make that unavoidable." Ex-director of the National Economic Council of the United States Gary Cohn adheres to this opinion. He has said on CNN that "the economy slows down very quickly, we are in a recession right now, we are having negative growth and the market is pricing in that uncertainty." On March 11, head of the European Central Bank Christine Lagarde said Europe was facing a major economic shock comparable to the financial crisis of2008.

Concerns around the global economic outlook have prompted the advanced countries' central banks and financial institutions to announce stimulus measures of supporting the economy and the population. Thus, the US Federal Reserve, without waiting for the meeting scheduled for March 18, lowered the rates to 0-0, 25% at a March 15 emergency meeting and announced the transition to a policy of quantitative easing and the purchase of additional bonds totaling $700 billion. On March 13, German Finance Minister Olaf Scholz announced a plan to massively increase business loans by means of the state development bank KfW in the amount of up to 550 billion euros, and the Bundestag altered the legislation so that companies that transferred their employees to a shortened working day could receive support from the state. French Finance Minister Bruno Le Maire said the government was actively working to prepare a package of stimulus measures for companies worth "tens of billions of euros."

However, all the measures declared lead to increased budget deficits in these countries, significantly boost macroeconomic uncertainty, and even provoke panic in some cases. Thus, US President Donald Trump's statement on suspending travel from Europe caused an 8 to 16% collapse in quotations at world stock markets.

As a result, numerous authoritative foreign experts believe once the virus spread continues, the impact of monetary injections on the world economy will be short-term in nature, while the coronavirus may well become a catalyst for a new global crisis. According to estimates by Oxford Economics, global GDP may fall short of 1.1 trillion by the end of 2020. Hermes experts state that global trade will decline by 2.5% at an annual rate in the first quarter and remain negative in the second quarter. Losses of travel companies will amount to $125 billion, while air carriers will lose 63 to 113 billion dollars.

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