Two men paint graffiti by frontline workers on a wall during the coronavirus pandemic in Mumbai, India.
Imtiyaz Shaikh | Anadolu Agency | Getty Images
SINGAPORE – The Covid-19 pandemic has dragged the global economy into one of the worst recessions ever, and it is not yet clear when a full recovery will occur.
Recent advances in coronavirus vaccines have brightened the economic outlook, but some economists said a potentially slow roll-out of vaccines in developing countries could hinder activity from returning to pre-pandemic levels.
Even in advanced economies, economists believe re-lockdowns in Europe to prevent infections from resurrecting could slow economic recovery.
“The vaccine discovery is a shot in the arm, but not until 2022,” Citi economists said in a report in early December. Still, there will be a “significant improvement” in the global economy in 2021, also because “it’s not difficult to be better than 2020,” they said.
Sharp decrease in activity
The rapid spread of Covid, which was first detected in China, forced many countries into months of lockdowns in 2020, which significantly reduced economic activity.
As a result, gross domestic product – the broadest measure of activity – fell to record lows in many economies.
The International Monetary Fund predicted that the global economy could contract 4.4% this year before climbing back to 5.2% in 2021. The IMF said in October the global economy had started to recover but warned of a return to pre-pandemic levels. “long, uneven and insecure.”
Travel restrictions remain in place
A key feature of coronavirus lockdowns around the world is the total or partial closure of borders, which stalled much of international travel.
According to the United Nations World Tourism Organization, by November 1, more than 150 countries and areas had eased travel restrictions related to Covid.
However, according to the UNWTO, many restrictions remain in place to limit movement across borders. This contains:
- Open borders only to visitors of certain nationalities or from certain destinations;
- Asking visitors to submit a negative Covid test before being allowed to enter the country;
- Asking visitors to quarantine or self-isolate upon arrival.
The loss of jobs is accelerating
A major consequence of the economic slump caused by the pandemic is an increase in global job losses.
The Organization for Economic Co-operation and Development, an intergovernmental entity, said that in some countries the early impact of Covid-19 on labor markets was “ten times greater than in the early months of the 2008 global financial crisis”.
“At-risk workers bear the brunt of the crisis. Low-wage workers were key to ensuring the maintenance of essential services during the lockdown, often at significant risk of exposure to the virus while on the job,” the OECD said in a report.
“They have also suffered major job or income losses.”
The national debt is increasing
Governments have increased their spending to protect jobs and support workers. Globally, government measures to cushion the economic setback from the pandemic totaled $ 12 trillion, the IMF said in October.
Such staggering spending has pushed the world’s public debt to an all-time high – but governments shouldn’t withdraw fiscal support too soon, the fund said.
“With many workers still unemployed, small businesses struggling and 80 to 90 million people likely to find themselves in extreme poverty by 2020 as a result of the pandemic – even after additional welfare – it is too early for governments to remove the exceptional support. “said IMF.
Central banks intervene
Central banks have also helped the economy by cutting interest rates – many to record lows – to help governments manage their debts.
The US Federal Reserve, whose policies affect economies around the world, cut interest rates to near zero and pledged not to raise them until inflation exceeds its 2% target.
Central banks in advanced economies – including the Fed and the European Central Bank – have also increased their asset purchases in order to put more money into the financial system. This is also being done by an increasing number of emerging market central banks looking for ways to support their pandemic-hit economies.