As nations across the globe entered or progressed through complete lockdowns during the Apr-Jun 2020 quarter, to contain the spread of the novel coronavirus, their economies suffered the worst contraction in decades during this time.
Economic activity came to a grinding halt and private consumption slid as millions lost their jobs and many economies plunged into the worst recession since the Great Depression. Economic activity in the US slowed down substantially in Q2 2020 as the pandemic, and the measures adopted to contain it, toppled economic activity. GDP shrank by 9.5 per cent on year-on-year basis in Q2 2020- a multi-decade low as private consumption emerged as the biggest drag on economic activity. For the year 2020, the Federal Reserve has projected a contraction of 6.5 percent in GDP while unemployment rates are expected to remain elevated, at 9.3 per cent, by the end of the year.
Eurozone and UK recorded double-digit contraction in GDP in Q2 2020 with economic activity in Eurozone sinking by 15 per cent while UK witnessed the biggest contraction, at 21.7 per cent, since comparable records began in 1956. Japan, too, witnessed the sharpest fall in GDP in more than forty years as the imposition of the six weeks long emergency, to contain the spread of the virus, forced GDP to contract by 9.9 percent in Q2 2020. The downtrend in GDP was mirrored by the major ASEAN economies as well. GDP shrank to multi-decade lows in Indonesia, Malaysia, Philippines, Thailand and Singapore while Vietnam recorded the slowest expansion in GDP since 2000. The economies have not only suffered due to the domestic containment measures but also because the lockdown abroad have impacted their two most prominent sectors, exports and tourism.
Nonetheless, while the latest growth figure for Q2 2020 touched multi-decade lows for almost all the countries around the globe, the Chinese economy beat the odds to expand by 3.2 percent on y-o-y basis in Q2 2020. The successful pandemic control, orderly easing of restrictions and stimulus measures announced by the government helped the economy stage an early rebound and recover from a contraction of 6.8 percent in the previous quarter. So far, China appears to be the only glimmer of hope that the global economy could bounce back to pre-pandemic levels of activity in the near future.
US GDP tumbles to 9.5 percent in Q2 2020- a multi-decade low
US economic activity slowed down substantially in Q2 2020 as GDP shrank 9.5 per cent y-o-y as against 0.3 per cent growth recorded in Q1. On a quarter-onquarter basis, economic activity tumbled at a record pace, falling by 32.9 per cent in seasonally adjusted annualized terms (SAAR).
The biggest drag on activity was from private consumption, which plunged by 34.6 per cent SAAR (-6.9 per cent in Q1), while business investments trended downwards at a faster rate of -27 per cent SAAR in Q2 (-6.7 per cent SAAR in Q1).
Eurozone and UK post double-digit contraction in Q2 2020
In Q2 2020, Eurozone GDP fell at the sharpest rate since the start of the time series 1995, with economic activity contracting by 15.0 percent on y-o-y basis as the containment measures were still in place in most of the member states.
In the UK GDP contracted by 21.7 percent on y-o-y basis in Q2 2020, marking the biggest fall since comparable records began in 1956. In Q2, household consumption fell by 25.2 percent and fixed investment dropped by 27 percent while government spending and net exports too contracted.
Japan’s GDP contracts at record pace in Q2 2020
Japanese economic activity shrank to its lowest in more than forty years, contracting by 9.9 percent on y-o-y basis in Q2 2020, as economic activity was restricted by the six week-long state of emergency imposed to contain the spread of coronavirus in the country.
This marks the third consecutive quarter of decline in GDP for Japan with the sharp fall in private consumption (10.9 percent) being the biggest drag. Looking ahead, while the economy is likely to recover from this fall in growth, it would however take a few years to return to pre-pandemic levels of economic activity.
China bounces back with 3.2 percent GDP growth in Q2 2020
The Chinese economy expanded by 3.2 percent on y-o-y basis in Q2 2020, recovering from a contraction of 6.8 percent recorded in the previous quarter. The growth estimate not only beat market expectations but also made China the first major economy to return to growth after the pandemic.
The successful pandemic control, orderly easing of restrictions and stimulus measures announced by the government have helped the economy stage an early rebound, which was further supported by increased exports of electronics, medical equipment and textiles (for surgical masks).
ASEAN economies contract at the sharpest rate in decades
All major ASEAN economies witnessed record levels of deterioration in economic activity in Q2 2020. GDP shrank to multi-decade lows in Indonesia, Malaysia, Philippines, Thailand and Singapore while Vietnam recorded the slowest expansion in GDP since 2000.
Further, these economies have also been hit due to lockdowns abroad which has impacted their exports and tourism and could continue to act as a downside risk in case of a second wave of the pandemic.
Across 107 developing countries 22 percent of the population still multi-dimensionally poor
The latest Global Multidimensional Poverty Index (MPI) shows that between 2000 and 2019, 65 out of 75 countries studied significantly reduced their multidimensional poverty levels. However, across 107 developing nations, 1.3 billion people still live in multidimensional poverty.
The coronavirus pandemic is likely to have a significant impact on the progress made to reduce poverty levels over the years and as per the report the progress across developing countries could be set back by 3-10 years on an average.
The article first appeared in the August 2020 issue of CII Economy Matters. Click here to read the full issue.