As we head into another weekend of coronavirus disruption, the outer perimeters of the problem is galloping away so fast that it has become difficult to make sense anymore. The sinister milestones keep coming at us without let up. The world by Friday had topped 11,000 Covid-19 deaths. By Thursday, Italy had surpassed China with 3,405 deaths, and on Friday hit the dubious record of 627 deaths in one day.
India, not a hotspot yet, is showing a spike. The last two days saw the largest number of Covid-19 positive cases, taking the tally to 236. Life and markets are paralysed. The two questions begging an answer are: When will it all end? And what is going to be the cost? As we search, this is certain: it will be a Brave New World we will face when all this is over, one that might be difficult to recognise.
The cost of the pandemic can be gauged only after seeing how long it will last. Singapore’s Foreign Minister Vivian Balakrishnan told CNBC that we should expect the economic aftermath of the outbreak to last at least a year. Donald Trump, who so far has been living in denial, said on Thursday that “people are talking about July-August” for normalcy to return to the US.
However, the US government’s own federal plan to tackle the virus warned policymakers that the “pandemic will last 18 months or longer”. The epidemic would hit in waves that could result in shortages and could strain the nations’ healthcare system, the plan warned.
As China thankfully takes control and is now reporting nil or very few new cases, other hotspots keep emerging. Italy first, and now Germany and Spain are spinning out of control. In India, after a period of smug dismissal, panic is setting in as educational institutions and normal business activities grind to a halt. With very few kits for coronavirus testing, no one has a clue what the actual numbers are. The important question is: are we going to be on the periphery of the storm, or are we are just getting into a size 12 hurricane?
What is going to be the human and economic cost of this ongoing pandemic? It all depends how quickly medical science and lockdown measures can slay the invisible monster. A vaccine to counter the coronavirus may take months to develop and commercial marketing may be as far as a year to 18 months away. And how do you calculate the human cost of 11,000 lives and counting; and 2.50,000 still fighting for recovery?
FACTORING THE DAMAGE
What will it cost the world economy again depends on how long it will take to get factories and normal supply lines back at work. The US Bridgewater hedge fund, founded by the famed Ray Dalio who predicted the 2008 financial crash, says the US alone will suffer a $4 trillion loss in business revenue. The Bridgewater research report released on Friday said, “Since this hit to revenues is happening throughout the world, the total hole globally will be roughly three times that — about $12 trillion.”
Goldman Sachs’ projections on Friday are equally dire. It has forecast the US second quarter GDP will contract a whopping 24 per cent, with 6 per cent drop in the first calendar quarter. Thereafter there will be a rebound, but the annual 2020 contraction will be 3.8 per cent, the firm has predicted. Needless to say, the domino effect on the rest of the world that depends on US markets will be crippling.
The Organisation for Economic Cooperation and Development (OECD) has downgraded its projections for 2020 of real GDP growth for all economies. China saw the biggest downgrade with OECD projections down to 4.9 per cent growth from the earlier forecast of 5.7 per cent. The global economy is expected to grow by 2.4 per cent in 2020, down from the 2.9 per cent projected earlier, according to the report.
Oil and energy will be the main sufferers, with the leisure and travel industry also taking major hits. Globally, the airline industry is set to lose $29 billion, as per the International Air Transportation Association.In India, the seriousness of the Covid-19 threat has not fully sunk in, what with politicians and Page Three types partying with corona-positive celebs from London.
The economic impact of the shutting down of civic life is now only too apparent. Federation of Indian Chambers of Commerce and Industry said on Friday that 53 per cent of businesses had reported slowing down of operations. Around 80 per cent had been hit by a decrease in cash flow.
Any hopes for emerging from the slowdown in the near future will have to be shelved. Fitch Ratings on Friday cut India’s growth forecast to 5.1 per cent for FY 2020-21 from the earlier 5.6 per cent, saying the coronavirus fallout will impact investment and exports. Unfortunately, there is little from government in the form of either projections or support stimulus.