Pandemic to deliver deep economic shock globally: Report

March 24, 2020
New Delhi: With one-fifth of the world’s population now under lockdown and industries shutting operations amid global supply chain issues, the new coronavirus pandemic is set to deliver a sharp and deep economic shock, a new report said on Tuesday.

According to analysts at BlackRock Investment Institute, market moves are reminiscent of the darkest days of the financial crisis, but they don’t think this is a repeat of 2008.

“Stringent containment and social distancing policies will bring economic activity to a near standstill, and lead to a sharp contraction in growth for the second quarter.

“However, provided bold policy actions are taken to bridge households and businesses through the shock, activity should return rapidly with limited permanent economic damage,” the analysts said in a note.

“This includes drastic public health measures to stem the spread of the infection, as well as coordinated monetary and fiscal policies to prevent disruptions that could cause lasting economic damage,” the March update from the institute added.

The Indian economy, that had already slowed down before the outbreak of coronavirus, is in for a more difficult period in the coming months with businesses almost coming to a standstill.

According to the Washington-based Institute of International Finance (IIF), the global economy was expected to contract 1.5 per cent in 2020 amid the coronavirus pandemic.

“We cut our global growth forecast from 2.6 to 0.4 per cent in the last two weeks, but the building COVID-19 pandemic, the OPEC price war and mounting credit stress in advanced and emerging markets continue to reshape the picture in fundamental ways,” the IIF said in a report.

The report also suggested that both the US and the Euro area were already in recession, with negative growth in the first quarter and large contractions in the second quarter.

According to the BlackRock note: “Over a longer horizon, this outbreak pandemic adds to the trade tensions in compelling companies to rethink their global manufacturing footprints. This combination of supply shocks could weigh on growth, increase production costs, pressure profit margins and drive up inflation.”

“The impact on economic activity will likely be sharp – and deep. And virus fears have led to a sharp tightening of financial conditions – and plunge in growth expectations,’ said analysts.

The Organisation for Economic Co-operation and Development (OECD) has said that the global economy will suffer for years to come due to the coronavirus pandemic, adding that the “economic shock was already bigger than the financial crisis”. IANS