By Kumar David –
The column today targets readers who may not have time to follow up the economic prospects of different countries over the next 12 to 18 months but would like a short update. I have chosen a few countries that matter to Lanka and tried to get what seems to be the most reliable information. I have also provided a few good URLs. The post-2009 finance-capital dominated global economic structure was unstable and defectively constructed; it is no surprise that COVID-19 blew it completely apart. A Minsky Moment merged seamlessly into an Edward Gibbon storyline.
Sachchidanand Shukla estimates in India’s Economic Times that a 30-day lockdown (the current lockdown is 21 days) will cost the Indian economy up to $240 billion in output. His estimate for Financial Year 2020 is a fall of the GDP growth rate to about 2-3% as opposed to previous expectations of 6%.
Separately, Jyoti Pande Lavakare the co-founder of Indian environmental organization Care for Air, says: “I have not seen such blue skies in Delhi in 10 years. It is a silver lining that we can step outside and breathe.”
Goldman Sachs has revised its coronavirus projections. The firm sees the jobless rate topping out at 15%. accompanied by gross domestic product fall 9% in Q1 2020followed by a stunning 34% plunge in Q2. This would be by far the worst in post-WW2 history. Goldman, whistling in the dark and says GDP will rebound 19% in Q3, the highest on record.
The New York Times says that the U.S. economy cannot withstand corona by itself. Ian Goldin responds on 16 March to questions from readers at
The U.S. Chamber of Commerce examines near and long-term economic impact:
“The spread of the coronavirus is having significant implications around the globe. We are in uncharted territory when it comes to the economy. We have never shutdown the U.S. economy to the extent it is shuttered now. The uniqueness of the current situation makes economic forecasting little better than fancy guesswork, but that has not stopped some from trying”. It estimates the shutdown will drop U.S. GDP by as much as 40% in Q2 in the worst case – average -12.4%. It echoes Goldman in asserting that “The good news is the economy will bounce back once people return to work and consumers start spending”. It hopes that Q3 and Q4 growth will be large after the dramatic collapse in Q2 and imagines, I believe incorrectly, that recent actions by the Federal Reserve, Congress, and the U.S. Administration will help maximize speed and size of recovery.
Economists at Deutsche Bank estimate that the eurozone is in line to suffer an 11.4 per cent GDP contraction in the second quarter of 2020. They think that the recovery — should restrictions begin to fall away in the second half of the year — will be a “gradual” return to pre-crisis times. The pace will be dependent on the degree of “scarring” present in the economy. “We judge this on the basis of the rise in unemployment, which differs country by country depending on structural factors and the success of the policy response to keep businesses afloat and workers in jobs. Even by mid-2021, GDP is still expected to be running 3-4% below pre-virus levels in Italy and Spain.”
For a brief country by country write of how EU countries and the US are trying to cope.
China’s business and economic activity slowed dramatically and foreshadows what the rest of the world can expect. Global economic losses could reach up to $2 trillion. As factories and shops reopen, China is over the initial supply side shock. However, the country now faces a double-headed demand shock. Domestic demand is slow due to psychological scars, bankruptcies and job losses. 65% plan to restrain spending habits. Overseas demand is down as other countries face outbreaks. With a fast recovery unlikely China’s GDP will shrink in Q1 2020—the first decline since 1976.
Nevertheless, with 60% of the global supply chain in hand and up to 90% of critical products like drugs and personal protective equipment manufacturing under its control, China is positioning itself to take control of the global economy, but it must first get out of the rut.
The scenario for 2020 and 2021 is very bad. Imports and exports may be down 50%. Garment factories have closed, the tourism/travel/hotel sector has dried up, 3-wheeler buggers can no longer feed their families, daily paid labourers, masons, carpenters, 3-wheeler guys and small contractors are up shit’s-creek. Even if corona disappears tomorrow how much longer for the SL economy to recover in the context of a collapse of the US and European and Indian economies. Frighteningly long.
While there has been public patience and acceptance so far, now there is growing anger. Especially among daily paid people – labourers, carpenters/masons, small contractors, 3-wheeler guys etc. for all of whose families no-work equals no-eat. Income support and emergency food distribution schemes are non-existent.
Bernie Sanders vindicated
What we are seeing is a Bernie Sanders dream-come-true. All of his arguments are being vindicated by, of all people Donald Trump! The govt has taken over paying salaries, mortgages, student loans and rent/mortgages. Throughout Bernie’s campaign his opponents have raised the question and argued, “Who’s gonna pay for all this??” (Universal healthcare, college education etc). 6.6 million people applied for unemployment benefits after the 1982 record of 695,000 was overwhelmed by the 3.3 million the previous week. Now the economic damage to the capitalist system is immeasurable and the country is shutting down; real estate taxes in default, bank loan default, rents delinquent and stock markets suspended.
Oh, so there was no money for democratic-socialism but now when capitalism is crashing, finance-capital finds itself disoriented system and Trump is deranged, as if by magic the printing press runs and money appears! Anything to save the system! Trump has delivered proof that “Crazy Bernie” is not crazy. (See Philip Gotthelf’s weekly newsletter for more).