As the world is engulfed with the coronavirus pandemic, the new chinese virus has caught most of the world economies off-guard, if not all. Here we analyse the impact of the deadly COVID-19 on the financial front.
The Virus, which has claimed approximately 2,00,000 lives worldwide with over 2.5 Million infected people is believed to have originated in Wuhan, China and allegedly either mistakenly or purposefully leaked from the Wuhan Institute of Virology Laboratory.
Most of the workers in these countries are facing the bleak prospect of losing their jobs, and the Governments are considering and rolling out large stimulus packages to avert a sharp downturn of their Economies which plunged the global economy into a deep recession. The world trade is expected to fall by between 13% and 32% 2020.
Such worsening world economy had never seen such a phase after the Great Economic Depression of 1930. The International Monetary Fund (IMF) chief Kristalina Georgieva warned that the world economy might face similar situations like the ones faced in 1930s, with depression estimated to be approximately 15%, the worst in history.
India is not going to remain isolated from the impact of covid-19 and will bear repercussions as it extended countrywide lockdown till 3rd May, totalling 40 days. Indian Gross Domestic Product (GDP) is expected to slow down between 1-2% as per various estimates with IMF projecting 1.9% For Fiscal Year 2021, as compared to the rest of the world which plunge into negative GDP expect China, and a possible exception of India. According to IMF sources, India's growth rate projected is the highest among all the G20 nations (at 1.9%) for the Fiscal Year 20-21. However, the country is still suffering from a recession which has not been seen in last three decades since liberalisation, and might go down further in coming days.
So here the question arises, that how will it affect world economy? As the UN department of economic and social affairs (DESA) said, the covid-19 pandemic is disrupting the global supply chains and international trade with nearly 100 countries closing national borders during the past month of March, which means big loss in tourism and travel industry, with the Indian economy expected to lose over 32000 crore everyday during the first 21 days of complete lockdown which was declared after coronavirus outbreak on 24th March 2020.
With rising unemployment, interest rates, and fiscal deficit, the economy in India has seen better days, adding fuel to the fire is the novel coronavirus that is sending tremorous down India trade market dependent on China for imports. The unemployment rate has reached new heights, from 6.7% on 15 March to 26% on 19 April, estimating to leaving about 140,000,000 people unemployed.
India has already been running short on its GST revenue collection, and the Corona virus could make matters worse . Taking important immediate responses catering to social problems, the Government has announced an extension in filling of GST for Financial Year 2018- 19 until June 30,2020. India has also rescheduled the introduction of mandatory invoicing until October 1, 2020.
In the agricultural sector whose employment share in India's population is the largest, large number of farmers around the country who grow perishables are also facing uncertainty. Various business such as hotels and Airlines are cutting salaries and laying employees, which have rendered more than 1 lakh people affected. The Event-Management and marketing industry is also facing a tremendous backlash, and is projecting an estimated loss of INR 3000 crore, said to be the worst in history.
The global economy is expected to slump into a major recession in 2020, as post-covid projections indicate, with IMF estimating a negative growth of 3% in the global production." The sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand," as said by an RBI (Reserve Bank Of India) report. The RBI also said domestic growth would depend on the speed with which the outbreak is contained and economic activity returns to normalcy. The central bank, however also warned that the impact of covid-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.
The Reserve Bank of India (RBI) on Thursday, 23rd April said the global economy is expected to tip into recession in 2020 as the covid-19 pandemic wrecks havoc on global production, supply chains, trade and tourism. While India’s growth outlook remains grim, in a respite of sorts the risks the inflation projection are seen balanced, said the central bank in its bi-annual monetary policy report.
It, however, also expressed confidence that the monetary and liquidity measures undertaken by the RBI and the government's fiscal measures would mitigate the adverse impact on domestic demand once normalcy is restored. According to the report, inflation is expected to remain benign following the softening of food prices and a sharp fall in crude prices. The RBI expects inflation for fiscal 2021 to move in the range of 3.6-3.8%, assuming normal monsoon and no major shocks.
"Signals from forward-looking surveys and estimates from time series and structural models, CPI inflation is tentatively projected to ease from 4.8% in Q1:2020-21 to 4.4% in Q2, 2.7% in Q3, and 2.4% in Q4, with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected," the report added.
India is also facing the dark clouds of Chinese opportunistic takeovers, as reports arose worldwide that various state-owned and private firms looking to invest heavily in foreign assets in various European countries, taking benefit of the clinging economies and getting the stakes in companies in huge discount offers. As various European countries have started controlling the FDI (foreign direct investment) laws with most of them restricting it to 10% with prior government approval, India too, on 18 April amended its FDI rules to save Indian industries from possible hostile takeovers from Chinese firms.
The Pandemic is expected to last till end of June to early July, if correct lockdown measures and social distancing is followed on with discipline while a vaccine develops. The hopes of the world are on various scientists and medical professionals who are working day and night to find a solution for the vaccine and possible treatments. The virus (SARS-CoV-2) has taken more than 780 lives and infected more than 24,500 people in India.
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