COVID-19 to affect both supply, demand sides of global economy
BAKU, Azerbaijan, May 15
By Nargiz Sadikhova - Trend:
Global GDP will contract sharply in 2020 as the COVID-19 pandemic has an enormous impact on the global economy, Trend reports with reference to the Euromonitor International.
The topic of ‘The Implications of COVID-19 for the Global Economy’ was discussed by Euromonitor’s Senior Economist Daniel Solomon and Consultant Giedrius Stalenis during a webinar.
As noted during the webinar, the COVID-19-associated crisis across the world will lead to the deeper recessions since 1930s and will affect both the supply and demand sides of the economy.
Three case scenarios of COVID-19 pandemic were discussed during the webinar, three of them being pessimistic and one being a baseline one.
“Our baseline forecast for global real economic growth in 2020 ranges from -1.5 percent to -4 percent, the lowest since the World War 2. In our baseline view the pandemic peaks by June-July 2020,” Stalenis said during the webinar.
The first pessimistic scenario in turn says that global real economic growth in 2020 will range from -6 percent to -4 percent (the probability of this scenario is 25-35 percent, in experts opinion), the second pessimistic scenario expects global real economic growth to range -8 percent to -6 percent (probability is 15-25 percent), whereas third pessimistic scenario says that global real economic growth in 2020 will range -11 percent to -8 percent (probability is 5-10 percent).
The experts said during the session that the Eurozone will likely contract 7.2 percent in 2020 with significant downside risk thus being among the worst hit regions in the world.
Stalenis also said that given the intensity of combined demand and supply shocks, it is not currently clear how economies will react to fiscal or monetary stimulus.
“Challenges to fiscal stimulus include potential restrictions on government debt accumulation and administrative bottlenecks in allocating government funds and loans,” he said.
Among the measures that could alleviate the economic effects of the pandemic were named: a coordinated global response that limit the spread of the virus, effective treatment, widespread testing and a vaccine could help to curtail the pandemic, fiscal and monetary policy stimulus could help companies and consumers stay afloat.
In turn, measures that could exacerbate the economic impact of the pandemic are declining consumption and investment, current short-term travel bans growing out into long-term protectionist, rising default rates and borrowing costs/risk premia triggering a financial crisis, pandemic lasting longer and infecting more people, spreading to emerging markets, longer pandemic and private sector cashflow problems reducing cause bigger long-term capital and output declining.
Talking the long lasting effects of the pandemic, the speakers said that global consumer expenditure is set to decline by 4.3 percent in real terms year-on-year in 2020.
Furthermore, the COVID-19 pandemic could bring about lasting changes in consumer attitudes and behavior, long-term increase in precautionary savings, falling consumption rates, increasing frugality. The pandemic could also lead to older consumers having to resort to online grocery shopping and COVID-19 being a catalyst for a permanent shift to a cashless world.
The outbreak of the coronavirus began in the Chinese city of Wuhan (an international transport hub), at a fish market in late December 2019.
The World Health Organization (WHO) declared COVID-19 a pandemic on March 11. Some sources claim the coronavirus outbreak started as early as November 2019.
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