By Huma Kashif*
The world has transformed dramatically in just a few months, as the coronavirus pandemic has resulted in a rare disaster which tragically took several innocent lives. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a “Great Lockdown”. The magnitude and speed of collapse in the activity that has followed is unlike anything experienced in our lifetimes.
This is a crisis like no other, there is substantial uncertainty about its impact on people’s survival and livelihood. This is a truly global crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions. A lot depends on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, all of which are hard to predict.
In addition, many countries now face multiple crises such as health crises, financial crises, and food security issues, etc. With over 3,178,866 confirmed cases and 220,677 deaths worldwide from the COVID-19 outbreak(1) till now, it is now believed to be a global catastrophe to what was initially viewed as a largely China-centric theme. The US, Australia, Europe, Africa, and Asia, all are wrestling with its enormity and aftermath.
Policymakers are providing unprecedented support to households, firms, and financial markets, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown.
Global Economic Reverse
The emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global risk appetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support.
Moreover, several economies entered this crisis in a vulnerable state with sluggish growth and high debt levels. As the coronavirus pandemic rips through countries, it is upending everything in the global economy. The governments are shutting down whole commercial sectors to stop the spread of COVID-19, putting a massive crimp in gross domestic product for months to come.
Stocks have slid and oil crashed with Brent crude falling below $16, a more than two-decade low, as demand for the commodity slumps due to the coronavirus pandemic. a fresh plunge in oil prices is blowing the crisis in the energy industry as well. The lockdown of major industries has weighed down the demand for oil. Oil production levels have remained robust even as the virus destroys demand, triggering a global supply glut. An unprecedented cut of almost 10% of global supply by OPEC and its allies is set to take effect next month, but traders worry it is not enough to offset the collapse in consumption. Most European nations plus the U.S. are slowly moving towards ending lockdowns and reopening their economies, but several analysts have warned that markets may not see a rapid bounce in crude demand. A crash in oil prices unleashed by the coronavirus hammered global stocks and opened another battlefront for pandemic-battered economies. The supply-and-demand balance for oil is so out of whack that global demand cannot grow fast enough and suppliers can’t cut supply quickly enough to put things back in order.
Joblessness has spiked as businesses such as restaurants and hotels shutter, with weekly unemployment claims setting a record in the US. What makes the coronavirus-led recession different from those that came before it is the speed of the disruption. More than 10 times as many unemployment claims were filed in the US during the 2008 downturn, but this time it’s happening much more quickly. The IMF has warned that the cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.
Disruptions to global supply chains are one of the clearest effects of the coronavirus. For the first time since the Great Depression, advanced, emerging, and developing economies are in a recession. Growth in advanced economies is projected at -6.1 percent for this year. Emerging market and developing economies with normal growth levels well above advanced economies are also projected to have negative growth rates of -1.0 percent in 2020, and -2.2 percent excluding China. The income per capita is projected to shrink for over 170 countries but economies are expected to partially recover in 2021. The value chains are being disrupted due to delays in the delivery of necessary components and supplies from more technologically advanced countries
The UN’s food body has warned that the protectionist measures by national governments during the coronavirus crisis could provoke food shortages around the world. Harvests have been good and the outlook for staple crops is promising, but a shortage of field workers brought on by the virus crisis and a move towards protectionism tariffs and export bans has worsened the situation that will lead towards food security issues. Coronavirus is affecting the labor force and the logistical problems are becoming very crucial.
Russia, for instance, the world’s biggest wheat exporter, may also threaten to restrict exports, as it has done before, and the position of the US is in doubt given Donald Trump’s eagerness for a trade war in other commodities. In India, coronavirus cases are still mostly concentrated in big urban centers such as New Delhi, Mumbai, Pune, and Indore. But the outbreak has triggered a collapse in demand for agricultural products and their farmgate prices, raising concerns about food availability and the economy. Although agriculture itself accounts for just 15 percent of India’s gross domestic product, it employs nearly half the workforce.
The rapid spread of coronavirus has had a major impact on global shipping markets, with the slump in demand for goods from China having a ripple effect on everything from container ships to oil tankers. Container ship operators that canceled more than half their sailings to China, as coronavirus-driven restrictions froze work at its ports, are bracing for a second wave of disruption. China accounts for an estimated 40% of business for container shipping companies. Supply chains were rattled as Beijing shut down factories, roads, and ports in the second half of February, including a broad lockdown in the industrial Hubei province at the center of the outbreak. Cargo containers piled up at terminals and on vessels for weeks as operations ground to a near standstill.
As the coronavirus pandemic keeps billions of people at home, the tourism sector is undergoing an immediate crisis. Many island nations rely on tourism, and the world’s major economies will also see drastic declines in spending as the coronavirus shuts down travel. According to the nonprofit World Travel and Tourism Council, which represents the international tourism industry, travel and tourism contributed $8.8 trillion to the global economy in 2018 and was responsible for 10.4 percent of all economic activity. The council estimates that travel and tourism are responsible for 319 million jobs around the world. 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. The tourism industry currently accounts for 10% of global GDP. The drop in arrivals will lead to an estimated loss of $300-450 billion in international tourism.
According to the United Nations, the impact on employment will be worse than initially expected. The ILO’s previously predicted rise in unemployment of up to 25 million in 2020, with losses in labor income in the range of USD 860 billion to USD 3.4 trillion. The ILO states that the current containment measures are affecting close to 2.7 billion workers, representing around 81 percent of the world’s workforce. The crisis is expected to hit workers in low- and middle-income countries particularly hard, where the share of those working in informal sectors, and who therefore have limited access to adequate health and social protection, is higher.
The United Nations (UN) has expressed concern that the COVID-19 crisis will lead to a reversal of decades of progress in the fight against poverty, and that already high levels of inequality within and between countries will be further exacerbated. The crisis will therefore inevitably and adversely impact the implementation of the 2030 Agenda for Sustainable Development.
The deadly virus brings with it the third and greatest economic shock of the 21st century after 9/11 and the financial crisis of 2008. The first signs of the epidemic’s effects on China’s economy are far worse than the initial predictions. The official data reveals a widespread slowdown in its economic activity and signifies the virus caused a 20% GDP declined in the first two months of 2020. Despite unparalleled emergency interventions by both European Central Bank and US Federal Reserve, the international financial markets have continued to fluctuate wildly.
As governments impose strict lockdowns and consumers stay at home, tourism and travel-related industries are among the worst-hit at the sector level. The International Air Transport Association warns that virus outbreak can cost worldwide air carriers between $63 billion and $113 billion in proceeds in 2020. With major disruptions confronting sporting events, restaurants, and other services, shares of main hotel companies have also plunged in the last few weeks. Similarly, the global film industry is expected to lose over $5 billion in lower box office revenues.
The cruise industry also suffered another setback, as they scramble to stem losses and protect jobs. The largest US airlines are making drastic cuts to their flight schedules; American Airlines has cut domestic flights by 30% in April and international flights by 75%, with deeper cuts expected for May. Delta Airlines plans to cut up to 70% of its flights and ground at least 600 planes, more than half of its fleet. United Airlines is cutting flights by 60%.
Social Distancing Causing Anxiety and Depression
As the COVID-19 pandemic sweeps across the world, it is causing widespread concern, fear, and stress, all of which are natural and normal reactions to the changing and uncertain situation that everyone finds themselves in. Children are likely to be experiencing worry, anxiety, and fear, and this can include the types of fears that are very similar to those experienced by adults, such as a fear of dying, a fear of their relatives dying, or a fear of what it means to receive medical treatment. If schools have closed as part of necessary measures, then children may no longer have that sense of structure and stimulation that is provided by that environment, and now they have less opportunity to be with their friends and get that social support that is essential for good mental well-being. Such contactless interactions have caused anxiety and depression among people.
People are restricted to meet their loved ones. Social distancing is damaging the essence of a socially interconnected world. As social distancing and self-imposed quarantine wear on and more workplaces urge employees to avoid the office, the COVID-19 outbreak has left many people more alone than they’ve been in a long time, or ever. Disregarding the immediate impact of the COVID-19 outbreak, the Institute for Fiscal Studies (IFS) has warned that the longer-term economic fallout could have persistent negative health effects, long after social distancing measures end.
Many of those who are most exposed to economic shutdown such as low-income families, especially those with young children are also most vulnerable to long-term effects on both physical and mental health. Fear of the unknown and uncertainty over how long we’ll have to resort to limiting our daily lives, fear of contracting the coronavirus, or even worry about how this will affect one’s financial situation are legitimate concerns.
The 24/7 media coverage of the COVID-19 pandemic has added to the already heightened levels of stress, anxiety, and isolation. Panic and stress have also been linked to outbreaks. Psychiatrists are uniquely situated to help both their patients and the greater community understand the potential impact of the virus and help patients, families, and society deal with this latest threat. Regarding older people and also those with underlying health conditions, having been identified as more vulnerable to COVID-19. Its impacts can be particularly difficult for older people who may be experiencing cognitive decline or dementia. And some older people may already be socially isolated and experiencing loneliness which can worsen mental health.
While the world grapples with the novel coronavirus, the pandemic is having some unexpected but positive side effects. The slowdown in human activity due to the pandemic has so far been shown to have had a positive impact on the planet. The world has some good news to look forward to amid the novel coronavirus outbreak: a hole in the ozone layer is in recovery. Traffic-free roads, plane-free skies, and widespread brick-and-mortar closings have made the planet a beneficiary of the coronavirus pandemic but only for the short term.
Many climate experts spotlighted 2020 as a critical year to take decisive action to limit the worst impacts of global warming. Emissions of the planet-heating gas CO2 have also fallen sharply. With global economic activity ramping down as a result of the coronavirus pandemic, it is hardly surprising that emissions of a variety of gases related to energy and transport would be reduced. According to the Scientist, a hole in the ozone layer above Antarctica has continued to recover, leading to changes in atmospheric circulation. The ozone layer is a protective shield in the Earth’s stratosphere which absorbs most of the ultraviolet radiation reaching us from the sun. Without the ozone layer, it would be nearly impossible for anything to survive on the planet.
In China, emissions fell 25% at the start of the year as people were instructed to stay at home, factories shuttered and coal use fell by 40% at China’s six largest power plants since the last quarter of 2019. The proportion of days with “good quality air” was up 11.4% compared with the same time last year in 337 cities across China, according to its Ministry of Ecology and Environment. In Europe, satellite images show nitrogen dioxide (NO2) emissions fading away over northern Italy. A similar story is playing out in Spain and the UK. The National Forum for Environment and Health (NFEH) has said that the lockdown regime enforced in Karachi (Pakistan) has provided an excellent opportunity to the authorities concerned to reassess urban sprawl, mass transportation, and industrial needs of the city to curb harmful carbon emissions.
A Global Shift Caused By COVID-19
- As the coronavirus pandemic is rising, speculations are rife as to what would be its consequences after its ravages are over. The COVID-19 pandemic will not fundamentally alter global economic situations. It will accelerate a change that had already begun: a move away from U.S.-centric globalization to more China-centric globalization.
- The pandemic will strengthen the state and reinforce nationalism. The Governments will be more prepared to meet the emergencies of this kind. COVID-19 will also accelerate the shift in power from West to East. But it would not fundamentally change the nature of world politics. Previous plagues did not end great-power rivalry nor ushered in a new era of global cooperation. If the United States and China, the world’s most powerful countries, cannot put aside their differences, the impact of the virus will be far worse.
- The COVID-19 caused people to adapt to working from home and in isolation. By forcing our collective hand to find digital solutions to keep meetings, lessons, workouts, and more going when sheltering in homes, it allowed many of us to see the possibilities for continuing some of these practices in a post-COVID-19 world.
- The post-coronavirus environment has all the makings of a geopolitical standoff. The last thing the world needs post-coronavirus is a nationalistic aero-political confrontation. Such a standoff would have colossal implications for the entire aviation supply chain, airframe and aerospace manufacturers, lessors and financiers. It would be greatly reduced in size and would be catastrophic for many satellite activities, like the business travel and tourism industries and aircraft manufacturing.
- The post-coronavirus chaos will alternatively offer a unique opportunity to reframe the foundations of the global airline industry. Finding the right direction will require leadership. We need to make sure that local ports and terminals are kept open for business. By saying that we recognize that naturally there is a global need for containing the spread, and we need to deal with it sensibly to make sure that food and goods are kept flowing to where it’s needed.
- More contactless interfaces and interactions will be adopted and digital infrastructure will be strengthened. For instance, health care and unemployment insurance systems will in the short-term be most affected and can respond through a range of temporary measures.
The United Nations is warning global hunger could double as a result of the coronavirus pandemic, putting 265 million people at risk. Policymakers are providing unprecedented support to households, firms, and financial markets, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown. To mitigate the effects, social security systems should take the necessary measures as early as possible to cope with an increased demand for benefits and services. We will need to work towards eliminating problems such as social and economic disparities caused by Coronavirus.
*Huma Kashif, an independent researcher based in Islamabad, Pakistan, holds a Post graduate degree in International Relations from Quaid-e-Azam University, Islamabad and has a keen interest in writing about International politics, Political Economy and Geopolitics of Eurasia.