While the global economy was already facing uncertainty due to the US-China trade wars since 2018, Covid-19 pandemic has also inflicted unprecedented economic shocks. No country is immune from the economic effects of the virus, at least not until the pandemic has been controlled universally. In April, the IMF predicted the global economy would shrink by 3 percent in 2020, while in June by 4.9 percent.
The pandemic has had several impacts over all sectors of the economy. In an integrated world economy, the Covid-19 pandemic has caused disruptions in both supply and demand chains. Predictions for a V-shaped economic recovery as the virus subsides or a vaccine is made are changing now that many countries are going through a second wave, and the virus’s economic impacts are estimated to spread over several quarters. Most economies have prevented deep recessions due to economic stimulus provided by governments and financial institutions, but slowing of global economic growth is unavoidable.
It comes as no surprise that economies all over the world are struggling with rising unemployment rates, and the World Bank predicts remittance flows to fall by 14 percent by 2021. No country will escape unscathed from the disastrous impacts of Covid-19; however, with suitable policy interventions and global cooperation, the impacts can be minimized.
With the highest number of cases, the United States has been leading the global chart of most affected countries.
Observers have opined that the situation has worsened in the US due to gross mismanagement by the Trump administration. Consumer spending in US and elsewhere has been strongly affected by public health measures, increasing virus cases and unemployment which has only been partially recovered by Economic Impact Payments. The pandemic also resulted in a decline in industrial production in the US which also poses challenges for the manufacturing sector.
In Spain and the UK, economic output has suffered a severe decline which was 20% lesser in the second quarter of 2020 than in the same period last year. The countries that did a better job at controlling the health effects of the pandemic were also able to mitigate the economic impacts. South Korea, Vietnam, Taiwan and China and are among examples where timely detection, containment and treatment measures, with the use of technology, proved to be effective in keeping Covid-19 cases and related deaths amongst the lowest in the world. South Korea’s health infrastructure with universal health coverage which was achieved in 1989, and its timely response allowed it to handle the pandemic attaining global acknowledgement. Vietnam’s well-established public health system too, was helpful in tracing new cases and preventing spread of the disease.
One of the emerging trends as a consequence of the pandemic is deglobalization, with countries adopting nationalistic policies pushing companies to localize business operations. The trade wars between two global economic giants were impacting businesses before the onset of the virus. US President Donald Trump has since blamed China for the virus, calling it the “Chinese” virus on multiple occasions and has adopted a non-cooperative posture. The vacuum created by unwillingness of US to play a leadership role has offered China space which can be used to its advantage. As the US stays out of WHO and Paris Climate Agreement, the strength of its global position as a “system manager” is being weakened. With Joe Biden’s victory, an increase in US cooperation instead of confrontation will bring a change in the global geopolitical future, but there are many domestic challenges awaiting the next US President. China’s economy continues to recover with growth figures between July and September at 4.9 percent, and its economic position continues to strengthen as it seeks to challenge global economic rules and US superiority.
The pandemic is also expected to bring structural changes to the global economy.
The income inequality between the rich and poor has already been increasing since the Global Financial Crisis of 2008, and the Covid-19 pandemic will worsen these inequalities as reduction in business profitability will push companies to cut wages and employment. Household purchasing power will inexorably take a hit, with decrease in household incomes causing a decrease in fertility rates over a few years. To ensure that the changes in the global economy are for a better future of mankind, social and environmental well being must be put first by policymakers.
There are various lessons to be learnt from the Covid-19 pandemic. Taking into account that 75 percent of emerging infectious diseases have zoonotic causes and US$100 billion has been lost to such diseases in the past two decades, there is a global responsibility to pursue sustainable development. Uninhibited human activity is not only contributing to climate change but is also laying the foundations for future pandemics, endangering human safety. Zoonotic diseases, those that are transmitted from animals to humans, are brought closer to humans due to deforestation and uncontrolled infrastructural development. Like action on climate change, this requires increased global cooperation, as a pandemic is a global problem requiring effective global solutions.
Pakistan’s Covid-19 response has received international acclaim and the country’s experience with the pandemic has been termed “miraculous” by many. Pakistan’s economy was already going through multiple challenges when the Covid-19 pandemic hit. With an early realization that the country’s economy cannot afford a total lockdown, the government was able to handle the pandemic through smart, localized lockdowns in affected areas.
As the arrival of the second wave has been declared, strict adherence to SOPs while keeping the economy operational has been chosen as the country’s path and seems to be the only option to keep the economy afloat. The pandemic has inflicted a loss of Rs. 3 trillion on the economy of Pakistan with the GDP taking a hit of 3-3.5 percent, according to Dr. Abdul Hafeez Sheikh. Inflation hit double digits in 2020 but is projected to slow down to 7.5 percent in 2021. Unemployment is another huge challenge, with the number of unemployed people in the country estimated to reach 6.65 million during the fiscal year 2020-21. To deal with these challenges, Pakistan will need innovative policy interventions and international cooperation.
To deal with the current and future pandemics, countries and international institutions must work to establish resilient healthcare systems and modernize public healthcare infrastructures. Lessons and best practices from the present experience should be utilized to better handle a public healthcare crisis of this scale. There is a need to adopt a proactive approach to minimize the potential damage a pandemic can cause to societies and economies. To protect the most vulnerable sections of societies that are disproportionately affected by situations such as this, innovative ways for wealth redistribution are needed on a global and national scale. Global cooperation over our climate which is in peril today is the need of the time to evade disastrous effects of future pandemics and climate change.
