Simply put, the fate of the global economy is undeniably intertwined with how countries deal with the fast-spreading Coronavirus (Covid-19) that has been declared a “pandemic” by the World Health Organization (WHO). “We cannot say this loudly enough, or clearly enough, or often enough: All countries can change the course of this pandemic,’’ reads a statement from Tedros Adhanom Ghebreyesus, director-general of WHO.
It doesn’t help that this pandemic originated in China, the second-largest economy in the world. The resultant lockdown in Wuhan and other regions—several countries have shut down their borders since—will have an indeterminable impact on business and beyond. (At the time of going to print, some factories and essential businesses in China were slowly opening again.) It was only on December 31 last year that China alerted WHO to several cases of unusual pneumonia in Wuhan. Just three months on, as of March 22, 2020, the number of confirmed cases had risen to 328,275 in 169 countries globally with 14,366 dead, according to the WHO.
India is hardly impervious, with a confirmed count of infected people at 400 and seven confirmed fatalities, reports say. To control the spread of the virus, the Indian government has announced the suspension of “all existing visas except diplomatic, official, UN/international organisations, employment and project visas” until April 15. It has also drawn up a detailed note to mitigate the impact of the virus on affected sectors like pharmaceuticals, consumer goods, auto and auto ancillary, and solar panels, among others. “We are engaging with export promotion councils and trade bodies to address the potential disruptions in the supply chain,’’ Piyush Goyal, Union minister of railways and commerce and industry, told the Lok Sabha recently.Prime Minister Narendra Modi has set up a task force headed by finance minister Nirmala Sitharaman to look into the economic fallout of the pandemic. According to Nomura, China’s growth is likely to fall to 4.8% or even lower to 3.9% in 2020 because of demand destruction, reduced imports and exports, and disruptions in supply chain. But given the massive economic devastation, all bets are currently off.
Most economists agree that what started in China has created reverberations in business globally. Supply disruption from the lockdown of production systems across the world and especially in China—the world’s factory—will not only result in a fall in income and layoffs among workers, but also cause a shortage of critical goods, especially intermediate products and services to other countries. A more lingering damage will be the disruption of the global value chain, which is likely to hit many multinational companies.
Moody’s Analytics has slashed growth fore-casts for G20 economies from 2.4% to 2.1%,and China’s from 5.2% to 4.8% for 2020. “A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment,” warns Madhavi Bokil, vice-president at Moody’s. Manila-based Asian Development Bank (ADB) predicts global losses between $77 billion and $347 billion due to Covid-19, with some experts predicting even higher figures.
The collateral damage to the Indian economy will also be massive, although it is more insulated than other Asian countries like Japan or even those in the EU simply because it is still an insignificant player in the global supply chain. That said, India is not inured from such cataclysmic disruptions. While China may account for only 5.3% of India’s exports, it makes up for a much higher percentage—14.2%—of the country’s total imports.Nearly 60% of the Chinese imports comprise electrical machinery and equipment, nuclear reactors and boilers, and organic chemicals.
Sonal Verma, managing director and chief economist for India and Asia ex-Japan at Nomura, says: “A disruption in these imports will adversely affect key industries such as pharmaceuticals, autos, electronics, solar, and agriculture and could lead to higher prices if inventories are depleted.’’ She forecasts that India will grow between 5.4% and 4.7% in calendar year 2020 depending on the severity of the outbreak. Similarly, ADB says the situation could cost the Indian economy between$387 million and $29.2 billion in personal consumption losses.
While no sector will remain untouched by this pandemic, in the following pages are some that are already feeling the massive blow.
(This story was originally published in the April 2020 issue of the magazine.)