COVID-19 impact: Global economy could shrink by 1% in 2020

United Nations: The global economy could shrink by up to 1 per cent in 2020 due to the COVID-19 (coronavirus) pandemic, and may contract even further if restrictions on economic activities are extended without adequate fiscal responses, according to analysis released on Wednesday by the UN Department of Economic and Social Affairs (UN-DESA).

The UN-DESA briefing finds that millions of workers are at risk of losing their jobs as nearly 100 countries close their national borders. That could translate to a global economic contraction of 0.9 per cent by the end of 2020, or even higher if governments fail to provide income support and help boost consumer spending, Xinhua reported citing the UN-DESA study.

According to the forecast, lockdowns in Europe and North America are hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services. Collectively, such industries account for more than a quarter of all jobs in these economies.

As businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy. The severity of the impact will largely depend on the duration of restrictions on the movement of people and economic activities and on the scale and efficacy of responses by national treasuries.

Against that backdrop, the UN-DESA is joining a chorus of voices across the UN system calling for well-designed fiscal stimulus packages which prioritize health spending and support households most affected by the pandemic.

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"Urgent and bold policy measures are needed, not only to contain the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability," said Liu Zhenmin, UN undersecretary-general for economic and social affairs.

The Acuite Ratings & Research, in its latest report, has said that the ongoing disruption caused by the spread of Covid-19 will have a significant economic consequence with estimates suggesting that every single day of the 21-day nationwide lockdown will cost the Indian economy almost $4.64 billion.

The single-day loss number will translate into a GDP loss of almost $98 billion during 21-day lockdown, the credit rating agency said.

"We have employed multiple methods to assess real GDP estimates for Q1 of FY21 and believe that there is a significant risk that it may contract up to 5%-6% as compared with a pre-Covid growth estimate of 5%," Sankar Chakraborti, CEO, Acuite Ratings & Research, said.

In such a lockdown scenario, the most severely impacted sectors are transport, hotel, restaurant and real estate activities. According to Acuite, there would be around 50% GVA (gross value added) loss in these sectors, which account for around 22% in overall GVA, in Q1 of FY21.

On the other hand, services expected to see enhanced activities during this crisis are communication, broadcasting and healthcare; however, at 3.5%, these sectors have a small contribution in the overall GVA.

The impact of the lockdown is also fairly severe on industrial activities, which are set to witness significant contraction in Q1 except in the pharmaceutical, gas and electricity and medical devices which account for around 5% of GVA.

Unlike the services sector, the industry, however, can manage demand to some extent with inventory drawdowns until the resumption of production.

Karan Mehrishi, Lead Economist of the rating agency, said: "The agricultural sector, which accounts for 15% of GVA, is nonetheless, expected to see continuing activity even in the lockdown period; however, the allied activities are partly impacted as livestock and fisheries are experiencing mute demand due to the Covid-19 concerns."

Acuite said it would take at least 2-3 months to restore the industry supply chain even if the lockdown is limited to 21 days; there are also further risks of local lockdown in different regions in India, depending on the extent of the outbreak and partial disruption in economic activities till H1FY19 is a realistic scenario.

It is estimated that the second quarter may show a moderately positive growth of just under 3% on the back of the expected normalization process and some pent-up demand although it is also linked to the intensity of the pandemic.

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On the positive side, a quick recovery in the domestic economic activities is likely in H2, which may in turn benefit from the increased fiscal and monetary measures along with lower global oil prices.

"We, therefore, believe that the average H2 GDP expansion may be in the vicinity of 6.5%. Overall, a likely contraction in Q1 followed by a modest growth in Q2 will clearly have a severe impact on India's economic trajectory that has already been under the effect of a prolonged slowdown," the report said.

(IANS)