Expert Insights 02: COVID and its Impact on the Economy
Economies all over the world are grappling to stay afloat with GDP going down to an all-time low. The lockdown caused by the current pandemic has taken its toll on economies all over the world. While the economies are now resuming but only a few countries have managed to control the virus transmissions. To understand the impact of COVID-19 on the global and Indian economy, we have expert faculty from ISBF to answer some of the pressing questions.
Prof. Navni Kothari:
The world economy and the global economy is suffering a severe supply shock. One of the worst-hit sectors is airlines, followed by real estate. Despite the fact that the economy is stalled, the share market which is considered to be the barometer of the economy is continuing to grow, which can be attributed to tax pays.
Prof. Atika Gupta:
There would be a major shift in trading between the countries. This pandemic has exposed the dependency of countries on other nations. Though the country is focusing on becoming self-reliant there is a big question whether it has the capacity and to what extent. The pandemic has brought to light the downside of globalization.
The repercussions are quite severe and disastrous. The periodic lockdowns and restrictions on the mobility of people will not be the most optimal solution. The liquidity crunch and adverse demand shocks have resulted in GDP Growth rates plunging across the entire world. It all depends on the health care systems, the launch of a vaccine, the recovery rates, and the social distancing norms practiced worldwide. Presently, there is a sharp dip in economic activity. Though the reactions are mixed and in the long run once the situation stabilizes economic activity will bounce back and reach the Pre-COVID levels provided the encouraging trends in recovery rates continue to remain. This is already visible in sectors like Automobiles, FMCG, IT, etc. Also, as many nations worldwide are lifting restrictions the pace of economic recovery should pick up, but noteworthy recovery would be visible after a time lag of two years.
The world is gripped with a global recession aggravated by both demand-side and supply-side shocks, and supply chain disruptions. With the growing forces of globalization, the adverse impact on one economy has detrimental consequences on other economies. The 2008 crisis is a capital crisis which started with the collapse of the USA real estate market led to a severe liquidity crunch and meltdown of the financial markets. However, the recovery was quicker than expected due to immediate measures and policies introduced by the government and the bailout packages extended by financial institutions. The COVID crisis is somewhat different – it is neither a capital, policy shortsightedness, and debt-induced crisis, as it is an unimaginable pandemic causing loss of human lives, where policy measures are helpful in providing some relief, but not a permanent cure. Understanding the cycle is equally important as the spread of the disease, control mechanisms and gradual recovery is a tedious and time-consuming process, which may not be the case for the financial crisis that has merged earlier. The recession of 2008 is financial mismanagement triggered the crisis, but this is an epidemic which has its own dynamics and shortcomings.