Unmasking the Masked Economy
What the economic fallout from coronavirus could look like & proposed action plan
INDIA (Finance) – The economic impact of the 2019–20 coronavirus pandemic in India has been largely disruptive. The World Bank & other credit rating agencies have already downgraded India’s growth for fiscal year 2021 with a prediction of lowest figures India might have seen in three decades since India’s economic liberalization in the 1990s.
As Coronavirus Lockdown Ends, Get Prepared for the Masked Economy, Indeed after the coronavirus emergency crests, the global economy will be wearing a mask for a long time to come. The former Chief Economic Advisor to the Government of India has said that India should prepare for a negative growth rate in FY21 and that the country would need a ₹710 lakh crore (US$10 trillion) stimulus to overcome the contraction.
Global economy may dip by nearly 1% in 2020 due to COVID-19 widespread, a reversal from the previous forecast of 2.5 per cent growth, the UN has said, warning that it may contract even further if restrictions on the economic activities are extended without adequate fiscal responses: United Nations
Several businesses have been badly affected due to the spread of COVID-19 universally. News reports are painting a dreary picture of the number of supply chains that are affected.
It is obvious that the worldwide economy is crushing to a halt.
What does this pandemic mean for the global economy? How is this affecting the economy? And, how is this impacting Indian markets?
These are some of the questions being asked & debated upon everyday but there is no concrete solution to it which one can find out, the challenge is to find your own formula suiting best to your business / industry during this global crisis since every industry will have to adapt to this new normal.
Your wants will be replaced by your needs in this new normal – as sales of impulses and high-ticket transactions are prudently delayed. This will significantly reduce non-essential consumption for the next few years at least. We may briefly say farewell to the mentality of reckless “purchase now, think later!” In spite of the lower interest rate regime ahead, personal leverage will also come down sharply.
The research findings by the UN Department of Economic and Social Affairs (DESA) said the COVID-19 pandemic is disrupting international supply chains & global trade. With over 100+ countries closing their international borders during the past month, the movements of people, tourism flows & business economy have come to a standstill. A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries. When the world economy comes back to life, it won’t look the same: It will be wearing a mask. Government directives and consumer caution likely will keep many faces covered for weeks, perhaps months to come.
Economy of India was expected to decline & loose over ₹32,000 crore (US$4.5 billion) every day during the First Complete Lockdown of 21 Days announced by the government following the coronavirus outbreak. Less than a quarter of India’s $2.8 trillion economy was functional under the complete lockdown. Almost around 50% of businesses in the country were projected to be significantly impacted. Supply chains have been disrupted & put under stress with the restrictions in place during lockdown; initially there was a lack of clarity in streamlining what is an “essential” and what is not. Most affected are those in the informal sectors and daily wage groups which are at greater risk. A large number of Indian farmers around the country who grow perishables are also facing uncertainty. Various businesses such as hotels, airlines, SMEs & MSMEs have been seen cutting salaries and laying off employees to plan their contingency for keeping healthy cash flow.
Macroeconomic & financial outcomes of the coronavirus have materialized in just three to six weeks, in comparison to the three years this took for the 2008 financial crisis. Global Markets are down more than 35%, credit markets have seized up, and credit spreads have spiked to 2008 levels.
The Shock-wave which stunned the world economy from COVID-19 has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by over 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in just the initial three weeks itself.
It took the US stock market just 15 days earlier this month to plunge into bear territory (a 20 per cent fall from its peak) – the quickest such fall ever. Markets are now down 35%, credit markets are shut (like those for junk bonds) are back to 2008 rates. Even big financial firms including Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to come down by an annualized rate of 6% in the first quarter, and by 24% to 30% in the second.
The governments need to deploy massive fiscal stimulus, through “Relief Schemes” of direct cash disbursements to households. Given the size of the economic shock, fiscal deficits in advanced economies will need to increase from 2-3% of GDP to around 10% or more. Only central governments of any nation have balance sheets large and strong enough to prevent the private sector’s collapse.
No ‘All Clear’ Signal for Coronavirus Economy
Unless the pandemic Covid-19 is stopped, economies and markets around the world will continue their free fall. But even if the pandemic is more or less contained, overall growth still might not return by the end of 2020.
Financial specialists are hesitant to figure when the world will pack into carrier seats, stadiums, shopping centers, bars and eateries once more. Much depends on far reaching coronavirus testing and the race for a Covid-19 remedy and immunization. But clearly, the coronavirus shutdown will not conclude rapidly or all at once.
Extraordinary carefulness can make work environments more secure and permit more of the economy to operate. But it likely won’t start to lift the cover from the world economy. That will take a medicate breakthrough that strongly decreases the Covid-19 danger and anticipates an over-burden of wellbeing & healthcare frameworks.
“Millions of workers in these countries are facing the bleak prospect of losing their jobs. Governments are considering and rolling out large stimulus packages to avert a sharp downturn of their economies which could potentially plunge the global economy into a deep recession. In other words, every component of aggregate demand – consumption, capital spending, exports – is in unprecedented free fall.
While most self-serving commentators have been anticipating a V-shaped downturn – with output falling sharply for one quarter and then rapidly recovering the next – it should now be clear that the COVID-19 crisis is something else entirely. The contraction that is now underway looks to be neither V- nor U- nor L-shaped (a sharp downturn followed by stagnation). Rather, it looks like an I: a vertical line representing financial markets and the real economy plummeting.
Taking into account rapidly changing economic conditions, the UN DESA’s World Economic Forecasting Model has estimated best and worst-case scenarios for global growth in 2020.
Plan for recovery now, not later
The COVID-19 crisis was impossible to predict with conventional wisdom and forecasting tools. However, there are many lessons companies can learn and carry forward once the crisis has passed and they’ve had a chance to analyze their response.
In the meantime, companies should be making decisions and taking actions during crisis with recovery in mind. When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business strategy to thrive in the future.
Longer term, companies will need to consider how robust their business, management team and initiatives were in facing the crisis. It will also be important to consider and reset the business assumptions that underpin the supply chain and other concentrations that many businesses have been exposed to over time.
For Decision makers to preserve business continuity & build enterprise resilience, owners & promoters of global enterprises shall have to be proactive & predictive.
As companies explore the progressing COVID-19 emergency, there are a number of key issues corporate pioneers ought to be considering almost, as well as steps they can take to not as it were respond to serious commerce stuns presently but too reshape their commerce and arrange for recovery. Companies around the world are attempting to come to terms with the affect the coronavirus (COVID-19) is having on their trade. In spite of the fact that the dangers are significant, the emergency moreover uncovers regions where companies can construct flexibility and reshape themselves for a post-crisis world.
We have recognized five needs for industry leaders & commerce pioneers to consider – numerous based on points of view and encounters from China and other nations in Asia, where COVID-19 first impacted.
- Prioritize Customer Engagement & Employee safety
- Build enterprise Resilience to adapt to the new economy
- Reshape strategy for business continuity
- Communicate with relevant stakeholders
- Capitalise on the use of government subsidies & support policies
At last would like to say: COVID-19 is the most tumultuous, most disastrous and the most defining age of our lifetime. I cannot think of anything else which has happened with such speed; started from December end in 2019, when the primary cases were detailed in China, to the middle of April 2020, when an assessed one-third of the world’s populace is bolted into their homes.
This article is written by Dr. GD Singh
Management Consultant, Brand Maker, Author, Entrepreneur, Changemaker & World peace Advocate who can be reached at www.gdsingh.com
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Source: IMF Data, World Bank Data, UN, Wikipedia & Online Resource