Zooming Lens on Global Economic Outlook Amidst Fears Over Second Wave of Infection

While nations such as New Zealand and Australia marked early success in containing the pandemic, the resurgence in infection cases is casting dark eye over prospective travel bubble between the two neighbours, thereby causing massive blow to the emerging positive signs for battered travel sector.

While the economy is expected to slow down massively during the year, the roll back of wage subsidies and other Government aids will further chart out the labour market scenario.

Banking sector is facing immense challenges amidst low interest rate regime, squeezed margins and looming threat of defaults.

While consumer confidence and business sentiments are picking up pace gradually, the duration and severity of virus containment is closely eyed amidst dedicated efforts of global health care players in the vaccination race.

ALSO READ: Pfizer and BioNTech Commence Phase 1/2 trial of Experimental COVID-19 Vaccine in the US

The threat of Second Wave Looms

After relative success in stamping down the virus, Australia has again witnessed a spike in the cases centred around Victoria, sending the hopes of near-term recovery into a nosedive.

The growing severity of infection in the country has quadrupled wave of concerns. At the same time, Victorian Chief Health Officer Brett Sutton indicated that he anticipates more deaths from another groundswell of disease.

Stay-at-home orders levied on 36 Melbourne suburbs has again put thousands of people under strict lockdown restrictions.

In another part of the world but with a similar scenario, the UK where restaurants and pubs are slated to open from next week, has put the localised lockdown on Leicester city as additional cases are reported.

ALSO READ: Surging COVID-19 cases and extended border restrictions: Potential impact on Australian journey to economic recovery

TThe record-setting single-day’s highs have led many US states to back-off from their reopening plans.

Meanwhile, China is in for another set of a fight against the coronavirus.

The pandemic situation seems to be getting out of hands in many other developing nations such as Brazil, India, etc. which are experiencing a stark rise in the cases daily.

Economic Brunt Massive than Projected

The grim situation offsetting the hopes of near-term revival seems to be further aggravated by the distressed economic outlook.

The International Monetary Fund (IMF) June 2020 Update to its World Economic Outlook (WEO) has revised its April projections towards a more pessimistic corner. The outlook concerning an uncertain recovery forecasts global growth to be -4.9% in 2020, which includes a further 1.9% dip in its April 2020 projections of -3.0%.

IMF WEO indicated that the impacts of COVID-19 on the global economy in the first half of 2020 were much higher than anticipated. The massive lockdown restrictions, no marked success in finding the cure and rising number of infections have been continuously deepening creases of worries for the governments and authorities.

The outlook indicated a particularly distressing situation, especially for low-income households, which has further increased global poverty concerns.

The implications of rising poverty could suggest a rise in child labour, a study by the International Cocoa Initiative suggests. Meanwhile, the United Nations warned that the world is exposed to a massive food crisis with Secretary-general Antonio Guterres indicating 50 million people currently at the risk of extreme poverty. Warn-torn countries such as Syria and Yemen are likely to witness all-time high hunger among children, while the undeveloped African nations face a severe crisis of essentials.

The global recovery at this juncture is projected to be way slower than previously anticipated, bringing the 2021 global growth forecast to be 5.4%. It would mean, 2021 GDP would be around 6.5% below the January 2020 projections, which was done before the massive global outbreak of the pandemic.

IMF indicated a higher than usual degree of uncertainty around the latest forecast. On the contrary, the Fitch Rating Agency indicated stabilisation in the forecast following clearer evidence of sequential improvements in economic activity in recent weeks. It still expects the global GDP fall to be 4.6%

Nevertheless, Fitch Ratings Chief Economist, Brian Coulton indicated that “the resurgence of the virus and renewed nationwide lockdowns” could restrain the economic revival.

Prospects for Economic Recovery

While businesses were opening by the end of first half, the continued social distancing in 2H 2020 and damage to supply disruptions will further decide the direction of recovery- U or V.

At the same time, the implementation of necessary safety and hygiene measures also have been impacting productivity. Slow relaxation of the support and policies with the economic reopening while reallocating resources to sectors beaten down by the pandemic is important here to define the revival charter.

The Australian government plans on not extending the support schemes beyond September, while the Organisation for Economic Cooperation and Development (OECD) has stressed to the need for the continuation of the scheme.

However, the rising financial debt of the governments providing stimulus packages can impede the financial assistance to the businesses and people.

The grave situation and concerns on the effectiveness of health measures without any vaccine to handle the unmanageable situation prophecies the impending worries for the world. Meanwhile, when the economy is at risk, adopting a highly strategic health-related approach can offer redemption to the gearing economy and keep the infections at bay.