When the pandemic hit the global economy at the start of this year, a recession was expected. The World Bank expected the developed world’s economy to contract by 7% whereas the developing world will see a recession of 2.5%. Of course, figures will vary according to region and robustness of economies, nonetheless, at least 170 countries were expected to go into recession.
It was understandable and normal. Lockdown was initiated all around the world. Meaning there was a drop in demand for commodities. Very little economic activities were going around.
Factories were closed, street vendors non-existent and the transport was very minimal. As a result, governments had to introduce heavy subsidies and economic packages to keep the economies running. Even still, oil for example, at some places experienced negative pricing where sellers were literally paying the buyers to get rid of stored crude oil. All that in mind, the global economy was sure to experience the worst decline, worse than the Great Depression of the 1930s. But the unexpected thing happened as the economies began to recover faster than expected as the International Monetary Fund (IMF) says. The Fund now expects global GDP to fall by 4.4%. It’s a better figure than predictions made in June which was 5.2% Let’s have a look at this phenomenon.
Why the fast recovery
The dreaded great depression due to COVID-19 seems like it won’t take place. At least not like the Great Depression of the 1930s. It’s because big economies are performing better than expected. Of course, the case of China is exceptional, but giant economies like the U.S. or the European Union is performing better than expected too. And their impact is limiting the contraction being experienced worldwide. The e-commerce industry is experiencing tremendous growth, mostly in the developed world but also to a large extent in the developing countries since many commercial facilities are not operating in traditional systems.
China faced the pandemic first. Initially, there was a shock but the Chinese government took harsh and strict measures, which helped the country to maintain a growth of 1.9%, better than the expected growth of 1%. The Chinese economy is worth 15 trillion USD. So understandably a well-performing Chinese economy will impact other countries positively. A massive Chinese made export regarding face masks and medical equipment has helped in this regard.
The world’s largest economy is performing well too. The U.S., with a nominal GDP of more than 20 trillion USD, was feared to face a contraction of 7.3% by mid-June but now the level has been dropped to 3.8%. Not a great sign under normal circumstances but still excellent considering 250 thousand deaths and 12 million infected due to the virus.
Falling oil price has restricted growth in Central Asia and the Middle East but as the major economies are recovering, so is the oil demand. Oil-producing states in the Middle East are expected to see a growth of more than 3% in the next year. The economy of the European Union is also on the path of recovery, as per german finance minister Olaf Scholz. The economic plan for COVID-19 is likely to help Europe perform better by 2021.
Almost every country introduced financial stimulus packages for the service, manufacturing, and business sectors. The situation would have been a lot worse in the absence of these. Also, the banking sector around the world showed remarkable resilience, just like the robustness of health and food programs. Monetary and fiscal regulatory responses have helped to protect cash flow and credit provisions. However, these supports need to be long term and must not be retracted unless a full recovery of economic activities; various policymakers and researchers say.
Full recovery is yet uncertain
Despite the initial good news, the IMF warns that full recovery is going to take a long time and there will be unexpected bumps along the way. Especially emerging markets and developing countries are likely to face harder situations since infection is spreading rapidly there.
India for example is still struggling to bring its economy on the path of a speedy recovery. The Indian government doesn’t have much financial stimulus capability right now and its lockdown measure seems only to delay the virus from spreading, but failed largely in containment. The same is the problem in South Africa, Mexico, Indonesia, Philippines, Malaysia, and Brazil too. These are newly industrialized economies and regional powers. However, COVID-19 seems to have taken a deeper toll on their economies as they struggle with new bouts of infection. As a result, poverty and unemployment are likely to rise in the future.
It was previously said that the oil price is recovering but bear in mind that many large economies are still recovering and oil demand is yet to go a long way to reach pre- corona level. So, till that, the fate of oil-producing countries remains uncertain.
Bangladesh faced several concerns due to the virus. A drop in garments sell orders from developed nations meant the most vital part of export earnings is going to be slashed. Then many foreign workers began to return home due to the virus, meaning a cut in foreign remittance. However, the economy performed better than expected. Foreign reserves hit an all-time high: 37 billion USD. Public debt to GDP remained low and orders for garments products began to come again by September. The recovery of the world economy is likely to be positive here too. Perhaps, alongside Vietnam, Bangladesh is the only South and Southeast Asian nation whose economy is performing well. Also, lockdown showed a great increase in IT sectors and e-commerce. An economic package of 677.5 billion BDT has helped the big corporates and in many cases, small MSME industries.
However, Vietnam and many other regional competitors are likely to recover soon and Bangladesh will face tough competition in near future. A resurgence in economic activities also show signs that another outbreak of COVID-19 can very likely take place and the country is yet to recover fully from the first phase of infection with a daily number of cases yet to show any profound recovery.
In short, despite seemingly better economic performances, the pandemic has hampered world progress in a complete sense. Every economy has witnessed some scarring and a major increase in debt. The growth of living standards, economic, and employment opportunities are not likely to see vast development. Smaller tax returns will make the governments struggle to recover from the debt and regain full economic potential in the coming years. Yet still, a slow sign of recovery means the future may not be all that bleak as it seemed at the start of 2020.