Coronavirus pandemic has sunk the world into the deepest recession inflicting substantial financial and human costs. Countries have had been imposing strict lockdown and isolation measures to protect human lives and not overburden the limited healthcare capacity, which has profoundly impacted economic activity.
IMF has projected world output will contract by 3% in 2020.
OECD predicts that world annual GDP growth will fall to 2.4% as a whole in 2020.
The pandemic will result in a sharp contraction in household spending, level of output, corporate investment and international trade. The duration and magnitude of shutdowns in countries, the extent of demand reduction in goods and services and the speed with which countries are taking policy measures will affect their annual GDP growth.
Let’s have a look at how the US, Australia and Chinese economy would fare.
The US has become the worst-affected country from coronavirus with the highest death toll of 76,928 deaths (at the time of writing) recording the highest number of fatalities in the world. US economy witnessed the steepest drop since the Great Depression due to lockdown in the country.
According to advance estimates of the Bureau of Economic Analysis, Real GDP decreased at an annual rate of 4.8% in Q1 of 2020 partly due to coronavirus induced lockdowns in March. The spread of the virus led to a massive reduction in demand as business and schools switched to remote working while consumers cut back spending.
While the US trade deficit further worsened by USD4.6 billion to USD44.4 billion in March 2020 from USD39.8 billion in February. The exports and imports also declined by 9.6% and 6.2% respectively as some businesses were operating at limited capacity while some had closed entirely due to coronavirus lockdowns. Also, another reason for the decline in trade was due to restrictions on the movement of travellers across borders.
Coronavirus rendered millions of workers jobless due to shutting down of several businesses. About 6.86 million people in the US filed for jobless claims in late March. As per the projection of economists approximately 3 million US natives filed applications for insurance (unemployment) for the week closed May 2 this year.
Both services and manufacturing PMI fell for the country in April as business activity slumped due to cancellation of orders resulting in reduced workforce amid the virus outbreak.
US economy still remains in pressure due to oil price slump and weak company earnings. Market experts expect a catastrophic decline in US GDP in Q2 2020.
Australia has been flattening its coronavirus curve, reducing the daily cases to 18 now after hitting the peak in March. Although the country has been successful in bringing its COVID-19 cases to almost nil due to which lockdown restrictions have been eased in some states, the economic policy measures taken to contain the virus is set to give a severe blow to its economy.
The Australian economy swelled by 0.5 percent in seasonally adjusted terms in the December quarter of last year. The retail sales rose 8.5% in March surpassing the earlier peak of 8.1% in June 2000 due to substantial demand for food, grocery and other retailing. While the trade surplus was noted at AUD10.6 billion in March 2020 as shipments to China increased while gold exports more than tripled to AUD3.6 billion as investors rush to buy safe haven.
However, about 1 million Australians have become jobless since social distancing measures were adopted, while the number of jobs plunged by 7.5% between the period of March 14-April 18. Accommodation and food services was the worst-hit sector suffering heaviest job losses followed by arts and recreation.
Belinda Allen, Senior Economist at Commonwealth bank has stated that recovery will be quite weak in 2021 and forecasted growth to contract by 5% in 2020, marginally less compared to 6% decline in GDP, as predicted by RBA.
She added that business investment and residential construction is likely to be bleak in 2021, and spending patterns of people will take time to recover to pre-COVID-19 levels.
Josh Frydenberg (Treasurer) stated that the lockdowns would result in a GDP plunge of 10% in the June quarter wiping off AUD50 billion from the economy.
RBA governor, Philip Lowe stated that Australia’s GDP would shrink by around 10% in 1H20 with a significant drop in the June quarter while unemployment is also anticipated to touch 10% by June. However, it has expected a strong bounce-back of 6-7% in 2021.
Hence, a much more robust recovery is possible if there is further progress in containing the virus altogether. Much of the Australian economy depends a lot on the rest of the world and exporters need rest of the world to provide incomes to miners, farmers, education and tourism.
China, the country where coronavirus emerged in the district of Wuhan, has reported 82,886 cases and 4,633 deaths from the virus, till now. But China has overcome the worst of the phase and has eased lockdown measures but remains cautious of the second-wave of virus infections.
Chinese economy shrank by 6.8% in Q1 of 2020 due to the adoption of wide-ranging containment measures amid coronavirus.
Foe he month of April, China’s trade surplus stood at USD 45.34 billion. The country’s exports rose with overseas shipments increasing by 3.5% during April as factories opened up and it exported millions of tonnes of medical equipment worth 71.2 billion yuan in March-April 2020. However, imports fell by double-digits of 14.2% from 2019 due to weak domestic demand and fall in commodity prices.
China’s service activity contracted in April for the third month again due to weak domestic and global demand due to COVID-19, as per the Caixin survey.
While Services PMI rose by only 1.4 index points to 44.4 in April from 43 in March due to the global demand slump affecting Chinese companies. The persistent fall in total new work led to a further drop in employment across the services sector
Further, the threat of additional US tariffs on Chinese goods still persists as a phase-1 trade deal with the US doesn’t seem to be on track at all as imports from the US stayed at multi-year lows.
IMF has predicted a growth rate of 1.2% in 2020 for the Chinese economy.
However, Market experts have warned that China is not immune to a global downturn and the country can take up more measures to lift domestic demand if trade tensions with the US rise.
The global economic growth remains uncertain depending on the intensity of the pandemic, the containment measures taken and the extent of disruptions on every front.