As the world continues to reel under the impact of the novel coronavirus, the global economic situation is getting worse by the day. The latest GDP data from the major economies reveals that the economic activity around the world has crumbled in the aftermath of the pandemic. GDP growth in the US decelerated in the ﬁrst quarter of the year, easing to 0.3 per cent on year-on-year basis as against 2.3 per cent expansion recorded in the previous quarter. The broad- based slump in GDP is likely to continue in the second quarter as well, since a large portion of the econEurozone omy is still under lockdown and the labor market has also been severely hit- with payrolls posting the biggest fall since March 2009 and unemployment rate shooting to a 2-year high in March 2020.
The economy recorded a sharp contraction in the ﬁrst quarter of 2020, with economic activity falling 3.3 per cent year-on-year marking the biggest contraction in GDP since Q3 2009. The ECB President, Christine Lagarde said the eurozone economy could contract between 5 per cent and 12 per cent this year, depending on the duration of the containment measures and success of policies to mitigate the crisis. The UK, too, recorded a contraction with GDP growth falling 1.6 per cent year-on- year- marking the biggest slump since Q4 2009. In 2020, the Bank of England foresees a 14 per cent contraction in economic activity, which would be the sharpest slump in over 300 years.
On the other hand, the Japanese economy oﬃcially entered a recession, after 4.5 years, as GDP contracted 2.0 per cent in Q1 2020 after a 0.7 per cent contraction in the previous quarter. Even though the state of emergency, has been lifted in majority of the Japanese prefectures, analysts expect GDP growth in the subsequent quarters to be more dismal given that two key contributors to Japanese economy- tourism and exports- have been hit hard by the virus.
Further, a recent report by the United Nations- World Economic Situation and Prospects for mid-2020, pegs a cumulative output loss of about US$8.5 trillion over the next two years, which would eﬀectively wipe out nearly all the output gains made during the last four years. The report notes that the world economy is set to shrink by 3.2 per cent in 2020 and only a modest recovery is anticipated in 2021- as the COVID-19 pandemic challenges the fundamental tenets of globalization- trade, economic and ﬁnancial integration.
US economic activity decelerates sharply to 0.3 per cent in Q1 2020
- Economic activity in the US decelerated in the first quarter of the year, easing to 0.3 per cent on year-on-year (y-o-y) basis as against 2.3 per cent expansion recorded in the previous quarter. The broad-based slump in GDP is likely to continue in the second quarter as well, since a large portion of the economy is still under lockdown and the labor market has also been severely hit.
- Though the US government and the Federal Reserve have launched a synchronized fiscal and monetary stimulus to deal with this crisis, economic activity is likely to recover only in the second half of the year.
After 4.5 years Japanese economy once again in recession
- Japanese economy officially entered a recession after 4.5 years as GDP contracted 2.0 percent on y-o-y basis in Q1 2020, marking the second consecutive quarter of a decline in economic activity. The slump in the economy is mainly attributable to the contraction in private consumption which has been doubly hit by the recent sales tax hike in October and the COVID-19 pandemic.
- Even though the state of emergency, which was announced in April, has been lifted in 39 of the 47 prefectures, analysts expect GDP growth in the current quarter to be more dismal given that two key contributors to Japanese economy- tourism and exports- have been hit hard by the virus.
EU and UK register steep contraction in GDP growth in Q1 2020
Source: US Bureau of Economic Analysis, Eurostat, Cabinet Office of Japan, Office of National Statistics-UK
- The Eurozone economic activity fell by a sharp 3.3 per cent on y-o-y basis in Q1 2020, posting the biggest contraction in GDP since Q3 2009, as business and household activity came to a standstill in the last two weeks of March given the measures adopted by the government to contain the pandemic.
- GDP growth in the UK fell by 1.6 per cent in Q1 2020, marking the biggest slump in economic activity sine Q4 2009 , as the pandemic and government’s actions to contain it led to widespread disruption in economic activity.
COVID-19 leading to global economic collapse in 2020
- According to the latest UN World Economic Situation and Prospects report, the world economy is set to shrink by 3.2 per cent in 2020 and only a moderate recovery is anticipated in 2021. The report projects a cumulative output loss of US$8.5 trillion over the next two years- wiping out nearly all the output gains made in the last four years.
- The report notes the significant impact of the lockdown measures on income and job loss world wide, which could further result in worsening poverty and income inequality situation around the globe.
While some countries maintain stringent response to COVID, others, including India, have relaxed some measures
Source: Hale, Webster, Petherick, Phillips, and Kira (2020). Oxford COVID-19 Government Response. Tracker-Last Updated 18th May. OurWorldInData.org/coronavirus
- The COVID Response Stringency Index, shows that as of May 2020 countries like Russia, Pakistan, Nepal, Bangladesh, Philippines, Argentina, Bolivia, Peru and Columbia etc. have had the most stringent response to the COVID-19 pandemic. The index records the number and strictness of government response to the COVID-19 pandemic and is based on nine response indicators like school closures, workplace closures, travel bans etc.
- India’s score on the index was 76.1 as on May 18, down from the perfect 100 recorded during March 25 to April 19 period as several restrictions have been eased in the country.
Sweden ranks prime in Energy Transition readiness while India’s rank improves to 74th spot
Source: United Nations; Government Response Stringency Index- Thomas Hale, Sam Webster, Anna Petherick, Toby Phillips, and Beatriz Kira (2020); Energy Transition Index-World Economic Forum
- The latest Energy Transition Index for 2020, by the World Economic Forum, positions Sweden at the top spot for the third consecutive year, as the country most prepared to transition to clean energy. The report notes that though out of the 115 economies, 94 have shown progress since 2015, environmental sustainability is still far behind.
- India’s rank on the index improved two places to stand at 74 in 2020 as improvement was recorded across all three dimensions of the energy triangle- energy access and security, economic development and growth, and environmental sustainability.
The article first appeared in the May 2020 issue of CII Economy Matters. Click here to read the full issue.