Need to address risk of steep economic decline

COVID-19 is posing the greatest test ever to humanity on both the health and economic fronts.  Confirmed coronavirus cases have approached one million around the world as Europe reels from the pandemic and the United States has reported record numbers of people out of work.

A staggering number of US workers have lost their jobs in the second half of March — a record 6.65 million last week alone — as the coronavirus forces stores and businesses nationwide to close their doors.

The US economy has now suffered nearly 10 million layoffs in just the past few weeks — far exceeding the figure for any corresponding period on record.

According to an analysis released by the UN Department of Economic and Social Affairs (DESA), the global economy could shrink by up to one per cent in 2020 due to the pandemic and may contract even further if restrictions on economic activities are extended without adequate fiscal responses.

The situation is grim on the economic front as DESA indicates that millions of workers are at risk of losing their jobs as nearly 100 countries close their national borders.

That could translate to a global economic contraction of 0.9 per cent by the end of 2020, or even higher if governments fail to provide income support and help boost consumer spending.

Lockdowns in Europe and North America are hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services.

Collectively, such industries account for more than a quarter of all jobs in these economies.

As businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy.

The severity of the impact will largely depend on the duration of restrictions on the movement of people and economic activities and on the scale and efficacy of responses by national treasuries.

UN officials have rightly cautioned that the adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels.

A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries.

Developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks. Global manufacturing production could contract significantly, and the plummeting number of travellers is likely to hurt the tourism sector in small island developing States, which employ millions of low-skilled workers.

More than 3.9 billion people, or over half of the world’s population, has been called on or obliged by their authorities to stay at home. In the US around 85 per cent of the population is under confinement.

It is heartening that the world remains united in the fight against the deadly virus. Seventy-four countries have responded to the UN health agency’s call to participate in a “Solidarity Trial” to compare four promising drugs or drug combinations, which might help treat COVID-19, and save the lives of those worst affected.

More than 200 patients are taking part so far and have been randomly assigned to one of the study tracks.

As suggested by Liu Zhenmin, UN Under-Secretary-General for Economic and Social Affairs, urgent and bold policy measures are needed, not only to contain the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability.