Intensify global interaction to battle virus

The International Monetary Fund’s (IMF)’s prediction that the global economy is expected to shrink by 3.0% during 2020 highlights the extent to which the deadly coronavirus COVID-19 is strangling the world financial system.

IMF’s forecast that the coronavirus-driven collapse of activity will spark the steepest downturn since the Great Depression of the 1930s also highlights the crucial need for intensified global interaction to combat the challenge.

The dilemma facing world leaders is how to strike a balance between public health and economic stability.

The primary concern of one and all is to avoid resurgence by the virus.

The IMF, in its 2020 World Economic Outlook, does predict a partial rebound in 2021, with the world economy growing at a 5.8% rate, but the forecasts are marked by extreme uncertainty and outcomes could be far worse, depending on the course of the pandemic.

The restrictions placed on travel around the world and the breakdown in supply chains have made the response to the pandemic a trying time for globalisation, as Gita Gopinath, IMF’s Chief Economist points out.

The strong and healthy economic recovery will not be sustainable if the world de-globalises.

Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions.

Emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global risk appetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support.

Several economies entered this crisis in a vulnerable state with sluggish growth and high debt levels.

The global economy contracted 0.7% in 2009 - previously the worst downturn since the 1930s.

In January, before the extent of the coronavirus outbreak both inside and outside China was known, the IMF had predicted that the global economy would grow 3.3% in 2020 as US-China trade tensions were starting to ease, with 3.4% growth seen for 2021.

IMF Managing Director Kristalina Georgieva has also made it clear that some $8 trillion in fiscal stimulus being poured in by governments to stave off collapse is not enough.

As she mentioned, central bank liquidity swap lines need to be extended to more emerging market countries, which face a double problem of locked-down activity and tightening financial conditions caused by a massive outflow of funds to save-haven assets such as US Treasuries.

The pandemic has dealt a heavy blow to airlines too.

Airline passenger revenues are set to plunge by 55 per cent, or $314 billion, in 2020 due to the coronavirus pandemic, as per International Air Transport Association.

It marks a sharp worsening of the forecast for the aviation industry, as just three weeks ago the decrease was predicted to be 44 per cent, or $252 billion.

The positive news is that new infections appear to have levelled off in much of Asia and Europe, including Italy, France, Spain and Germany.

Even in New York, where reported coronavirus deaths passed 10,000 on Monday, Governor Andrew Cuomo has declared the “worst is over if we can continue to be smart.”

COVID-19 is estimated to be 10 times deadlier than the 2009 flu pandemic. It spreads most easily in crowded environments, such as nursing homes, and in some countries the number of cases is doubling every 3 to 4 days.

As of now the best bet that remains for countries to curb the spread of the coronavirus is a mix of social distancing, testing, contact tracing and isolation.

There’s no scope for complacency.