Global Economic impact of COVID-19 Pandemic

According to the UN’s trade and development agency, UNCTAD  that the tragic human consequences of the COVID-19 coronavirus epidemic, the economic unacertainty it has sparked will likely cost the global economy $1 trillion in 2020.

“We envisage a slowdown in the global economy to under two per cent for this year, and that will probably cost in the order of $1 trillion, compared with what people were forecasting back in September,” said Richard Kozul-Wright, Director, Division on Globalization and Development Strategies at UNCTAD.

Launching the UNCTAD report as world financial markets tumbled over concerns about supply-chain interruptions from China, and oil price uncertainty among major producers, Mr. Kozul-Wright warned that few countries were likely to be left unscathed by the outbreak’s financial ramifications.

Confirmed cases of the novel coronavirus (COVID-19), which first appeared in China at the end of last year, now exceed 115,000 as of March 10 and are likely to climb significantly higher. While over two-thirds of the total confirmed cases are in mainland China, the vast majority of new cases reported since February 25 have occurred outside the country. What was initially seen as a largely China-centric shock is now understood to be a global crisis. The virus’s spread has regrettably borne out analysts’ downside scenarios, with investors digesting the implications of disrupted supply chains, official containment measures, and spillovers from the real economy to financial markets. A decision by two of the world’s largest energy producers to maintain current levels of production, despite falling energy prices, has further unnerved investors while questions about governments’ abilities to mount an effective and coordinated response linger. The increased uncertainty has led to financial market volatility last seen during the global financial crisis.

Early indications of COVID-19’s impact on the Chinese economy are worse than initially forecast. Surveys of China’s manufacturing and services sector plunged to record lows in February, automobile sales sank a record 80 percent, and China’s exports fell 17.2 percent in January and February. The official data confirmed a widespread slowdown in economic activity foreshadowed in low pollution levels and depressed shipping traffic, among other informal barometers. Analysts have sharply revised down estimates of Chinese growth, with many now predicting a drop in first quarter GDP, the first contraction since China began reporting quarterly data in 1992. As COVID-19 spreads, China’s economic recovery will be challenged as demand from other countries drops as they cope with the virus.

Although the outbreak appears to have slowed in China, COVID-19 and its impacts have gone global. Infections are mounting in Europe, South Korea, Iran, the United States, and elsewhere, with authorities implementing increasingly restrictive measures to contain the virus. Europe and Japan are likely already in recession territory given their weak fourth quarter performance and high reliance on trade. While the United States entered the crisis with a tailwindsome analysts are forecasting a contraction in U.S. GDP in the second quarter. Estimates of the global impact vary: early last week, the Organisation for Economic Co-operation and Development (OECD) predicted that COVID-19 will lower global GDP growth by one-half a percentage point for 2020 (from 2.9 to 2.4 percent); Bloomberg Economics warns that full-year GDP growth could fall to zero in a worst-case pandemic scenario.

The COVID-19 outbreak has generated both demand and supply shocks reverberating across the global economy. Among major economies outside of China, the OECD forecasts the largest downward growth revisions in countries deeply interconnected to China, especially South Korea, Australia, and Japan. Major European economies will experience dislocations as the virus spreads and countries adopt restrictive responses that curb manufacturing activity at regional hubs, including in Northern Italy. As a result of depressed activity, the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.

Spend now, to avoid meltdown later

To counter these fears, “Governments need to spend at this point in time to prevent the kind of meltdown that could be even more damaging than the one that is likely to take place over the course of the year”, Mr. Kozul-Wright insisted.

Asked about how different countries might react to the crisis including China – where the virus first emerged in December – and the United States, the senior UN economist said that the Chinese Government would likely introduce significant “expansionary measures” – shorthand for increasing spending or tax cuts.

“It will almost certainly do that,” he said. “Will the US Government in an election year, which is where we are…also need to respond in a way other than simply cutting taxes and reducing interest rates? I suspect it will do.”

Turning to Europe and the Eurozone, Mr. Kozul-Wright noted that its economy had already been performing “extremely badly towards the end of 2019”.

Europe facing recession

It was “almost certain to go into recession over the coming months; and the Germany economy is particularly fragile, but the Italian economy and other parts of the European periphery are also facing very serious stresses right now as a consequence of trends over (the last few) days.”

Describing many parts of the Latin American region as similarly vulnerable, he added that Argentina in particular “will be struggling as a consequence of the knock-on effects of this crisis”.

Commodity-rich countries face hit from stronger dollar

So-called Least Developed Countries, whose economies are driven by the sale of raw materials, will not be spared either.

“Heavily-indebted developing countries, particularly commodity exporters, face a particular threat”, thanks to weaker export returns linked to a stronger US dollar, Mr. Kozul-Wright maintained. “The likelihood of a stronger dollar as investors seek safe-havens for their money, and the almost certain rise in commodity prices as the global economy slows down, means that commodity exporters are particularly vulnerable.”

“Ultimately,” Mr. Kozul-Wright added, “a series of dedicated policy responses and institutional reforms are needed to prevent a localized health scare in a food market in Central China from turning into a global economic meltdown”.

Threat of pandemic ‘very real’: Tedros

Although the threat of COVID-19 becoming an official pandemic “has become very real”, the world is “not at  the mercy of the virus”, said the World Health Organization (WHO) head, Tedros Adhanom Ghebreyesus, briefing journalists in Geneva on Monday.

He said it was important not to let grim milestones such as passing the infection rate of 100,000 worldwide, sap resolve to contain the disease, stressing that 93 per cent of deaths so far have been in just four countries.

It would be “the first pandemic in history that could be controlled. The bottom line is, we are not at the mercy of the virus”, he added.

This is how coronavirus could affect the travel and tourism industry

At the sectoral level, tourism and travel-related industries will be among the hardest hit as authorities encourage “social distancing” and consumers stay indoors. The International Air Transport Association warns that COVID-19 could cost global air carriers between $63 billion and $113 billion in revenue in 2020, and the international film market could lose over $5 billion in lower box office sales. Similarly, shares of major hotel companies have plummeted in the last few weeks, and entertainment giants like Disney expect a significant blow to revenues. Restaurants, sporting events, and other services will also face significant disruption. Industries less reliant on high social interaction, such as agriculture, will be comparatively less vulnerable but will still face challenges as demand wavers.

  • Airlines and cruise ships are currently more affected than hotels.

  • The World Travel and Tourism Council has warned the COVID-19 pandemic could cut 50 million jobs worldwide in the travel and tourism industry.

  • Asia is expected to be the worst affected.

  • Once the outbreak is over, it could take up to 10 months for the industry to recover.

  • The tourism industry currently accounts for 10% of global GDP.

The coronavirus epidemic is putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year, Asia being the most affected continent, the World Travel and Tourism Council has said.

This impact would depend on how long the epidemic lasts and could still be exacerbated by recent restrictive measures, such as those taken by the U.S. administration on travel to Europe, WTTC’s managing director Virginia Messina told Reuters.

“Certain measures are not helping and they can prompt the economic impact to be way more significant,” Messina said referring to the U.S. decision.

She argued that such policies are too generic and not proven to be effective to contain the virus. She also said that such restrictions could complicate travel by medical experts and delivery of medical supplies.

Around 850,000 people travel each month from Europe to the United States, equivalent to a $3.4 billion monthly contribution to the U.S. economy, Messina said.

Of the 50 million jobs that could be lost, around 30 million would be in Asia, seven million in Europe, five million in the Americas and the rest in other continents, she projected.

The equivalent to a loss of three months of global travel in 2020 could lead to a corresponding reduction in jobs of between 12% and 14%, the WTTC said, also calling on governments to remove or simplify visas wherever possible, cut travel taxes and introduce incentives once the epidemic is under control.

She also encouraged flexibility in the sector, so that travelers can postpone and not cancel their plans.

It could take up to 10 months for tourism industry to recover from the shock of coronavirus.

Image: WTTC

By sector, airlines and cruise ships were currently being more impacted than hotels, the official added.

The tourism industry accounts for 10% of the world’s GDP and jobs.

The WTTC official defended the confinement of certain towns – as is currently happening in Italy and Spain – if health officials recommend it to contain the outbreak, but only in specifically targeted areas or for certain age groups.

Messina estimated that, once the outbreak is under control, it would take up to 10 months for the tourism sector to return to its normal levels.

Fears of a broader outbreak and its economic impact spread to financial markets last month, and most international indices are nearing bear market territory (declining at least 20 percent from the 52-week high) as investors process the lower corporate earnings that will result from the virus. The S&P 500 fell 7 percent to open the March 9 session, triggering a “circuit breaker” that briefly suspended trading for the first time since 1997. Overall, the index is down about 17 percent from its record high on February 19. Amid the equity rout, investors have fled to safe haven assets such as U.S. Treasury bonds, leading to record low yields. Low yields translate into low borrowing costs for the U.S. government, but low interest rates may not benefit private companies or individuals (or even all sovereigns) who may find financial markets too risk adverse to extend credit in light of such uncertainty. The longer the virus spreads, the more economic and company performance will be impacted, raising concerns about debt sustainability, especially for highly indebted countries and companies, absent official support.

Thus far, national governments have announced largely uncoordinated, country-specific responses to the virus. In China, the epicenter of the outbreak, officials announced billions in special-purpose loans to companies facing liquidity constraints as well as financial support to specific sectors such as aviation. In the United States, the Federal Reserve cut the policy rate in an emergency action on March 3, and on March 9, in coordination with other U.S. bank regulators, it encouraged financial institutions to “meet the financial needs of customers and members affected by the coronavirus,” a move aimed at supporting financial conditions to prevent the growth shock from turning into a broader financial crisis. On March 9, the Federal Reserve Bank of New York also announced expanded overnight repurchase operations by $50 billion to avoid a deeper credit crunch.

The European Central Bank and Bank of England are expected to take action when their monetary policy committees meet later this month. On the fiscal front, President Trump previewed his administration’s plans to seek a payroll tax cut and assistance for impacted hourly workers and industries. Countries announcing fiscal measures just this month include Japan ($9.6 billion, or 0.19 percent of GDP), South Korea ($9.2 billion, 0.56 percent of GDP), and Italy ($4.1 billion, 0.20 percent of GDP). The adequacy of such spending will depend on the virus’s path as well as the effectiveness of other measures to contain negative spillovers from the growth shock.

In terms of coordinated action, on March 6, the G20 finance ministers and central bank governors pledged to take “appropriate” fiscal and monetary measures but made no specific commitments. On a March 3 phone call, G7 finance ministers reaffirmed their “commitment to use all policy tools” but did not outline specific steps. For their part, the International Monetary Fund and World Bank last week announced the availability of $50 billion and $12 billion in financing, respectively, to support low income and emerging market economies’ responses to the virus.

Scientists do not yet have a clear understanding of the virus’s behavior, transmission rate, and the full extent of contagion; uncertainty will be part of the backdrop for the foreseeable future. Coherent, coordinated, and credible policy responses provide the best chance at limiting the economic fallout from what is already and sadly a human tragedy.

A Light in the horizon

President Trump on Thursday exaggerated the potential of drugs available to treat the new coronavirus, including an experimental antiviral treatment and decades-old malaria remedies that hint of promise but so far show limited evidence of healing the sick.

No drug has been approved to treat the new coronavirus, and doctors around the world have been desperately administering an array of medicines in search of something to help patients, especially those who are severely ill.

The malaria drugs, chloroquine and hydroxychloroquine, are among the remedies that have been tried in several countries as the virus has spread around the world, killing at least 9,800.

Both drugs have gone into short supply in the United States this month, as word has spread of their potential benefit to coronavirus patients. Manufacturers of the generic products have said they are ramping up production. One company, Teva, said it would donate millions of pills of hydroxychloroquine to hospitals, and another company, Mylan, said it would restart production of the drug.

Doctors in China, South Korea and France have reported that the treatments seem to help. But those efforts have not involved the kind of large, carefully controlled studies that would provide the global medical community the proof that these drugs work on a significant scale.

In a White House briefing Thursday, Mr. Trump said the anti-malaria drugs had shown “tremendous promise.”

“I think it’s going to be very exciting,” he said. “I think it could be a game changer, and maybe not.”

The drugs’ potential has been highlighted during broadcasts on one of Mr. Trump’s favorite news channels, Fox News, where hosts like Laura Ingraham, Tucker Carlson and Jeanine Pirro have trumpeted the possibility of a real treatment.

“They’ve gone through the approval process,” Mr. Trump said of the drugs. “It’s been approved, and they did.”

But the F.D.A. has not approved any drugs for use in the treatment of coronavirus, and the drugs were already available, to treat malaria as well as rheumatoid arthritis and lupus. To date, the F.D.A. has not added the coronavirus to the list of illnesses for which the drugs are specifically approved. Then again, doctors have been free to use both old malaria drugs for any purpose deemed appropriate.

At the briefing on Thursday, Dr. Stephen M. Hahn, who has been the commissioner of the Food and Drug Administration for only three months, tended to walk back some of the president’s more inflated predictions that these drugs might vanquish the virus altogether.

He said Mr. Trump had asked the agency to look into chloroquine to fight the coronavirus, and that it was setting up a large clinical trial to evaluate the drug.

Some hospitals in the United States have already begun using the drugs for coronavirus patients, apparently reasoning that they may help and are unlikely to do harm. They are cheap and relatively safe. Laboratory studies have found that they prevent the coronavirus from invading cells, suggesting that the drugs could help prevent or limit the infection.

Not everyone can take the drugs: They are not safe for people who suffer from heart arrhythmia, or those with impaired kidneys or liver.

The University of Minnesota is conducting a study in which people who live with a coronavirus patient are being given hydroxychloroquine to find out if it can prevent the infection.

Dr. Hahn also said that the agency was allowing sick patients to use remdesivir, the not-yet-approved antiviral drug made by Gilead. Such so-called “compassionate use” programs allow patients to take unapproved, experimental drugs if they have no other options.

Remdesivir has already been given to patients on a compassionate-use basis, including the first coronavirus patient in the United States, who was treated in Washington State in late January.

Remdesivir is being studied in clinical trials, but the results are not available yet. It was studied to treat Ebola, but did not work well enough to be useful for that disease.

Dr. Hahn noted that the agency’s job was to prove that drugs were safe and effective. “What’s also important is not to provide false hope, but to provide hope,” he said.

As word has spread about chloroquine’s potential, demand in the United States has overwhelmed the country’s only supplier of the drug, the New Jersey generic manufacturer Rising Pharmaceuticals.

Chloroquine has been in short supply since March 9, according to the American Society of Health-System Pharmacists, which tracks drug shortages. Hydroxychloroquine, which is made by more companies, has been in shortage since Thursday.

Ira Baeringer, chief operating officer of Rising Pharmaceuticals, said his company had been tracking the use of the drug in China and elsewhere. They increased production about three weeks ago, he said, and are meeting all of their orders. But he acknowledged that pharmacies may currently have low stocks.

“We are experiencing an extraordinary demand, as you can imagine, but we are shipping to all of the orders,” Mr. Baeringer said. He noted that the product had not yet been extensively tested for coronavirus so it was unclear how well it works. “We’re really trying to understand what the need is going to be.”

On Thursday, the German manufacturer Bayer said it had donated three million tablets of chloroquine to the U.S. government for potential use as a treatment for coronavirus.

Bayer does not sell its chloroquine product in the United States, but has said it is seeking approval from the F.D.A. for it to be used on an emergency basis. Chloroquine, sold under the brand name Resochin by Bayer, was discovered by the company in 1934. Bayer said in a statement Thursday that it “appears to have broad spectrum antiviral properties and effects on the body’s immune response.”

The company said it had been in recent talks with the White House and several federal agencies to offer assistance.

Mr. Trump has previously made unfounded predictions that the coronavirus epidemic would soon disappear. On Thursday, he appeared to enlist the malaria drugs in that effort, even though Dr. Deborah Birx, the White House’s coronavirus response coordinator, said the virus could return in the fall or winter of next year.

“If they work, your numbers are going to come down very rapidly,” Mr. Trump said. “So, we’ll see what happens, but there’s a real chance that they might — they might work.”

 

Reference:

Sheila Kaplan contributed reporting.

Denise Grady has been a science reporter for The Times since 1998. She wrote “Deadly Invaders,” a book about emerging viruses. @nytDeniseGrady

Katie Thomas covers the business of health care, with a focus on the drug industry. She started at The Times in 2008 as a sports reporter. @katie_thomas

Stephanie Segal

Senior Fellow, Simon Chair in Political Economy

 

 

Related Posts