Apart from the tragic human consequences of the COVID-19 coronavirus epidemic, the economic uncertainty it has sparked
will likely cost the global economy $1 trillion in 2020, the UN’s trade and development agency, UNCTAD, said on Monday.
“We envisage a slowdown in the global economy to under two per cent for this year, and that will probably cost in the
order of $1 trillion, compared with what people were forecasting back in September,” said Richard Kozul-Wright,
Director, Division on Globalization and Development Strategies at UNCTAD.
Launching the UNCTAD report as world financial markets tumbled over concerns about supply-chain interruptions from
China, and oil price uncertainty among major producers, Mr. Kozul-Wright warned that few countries were likely to be
left unscathed by the outbreak’s financial ramifications.
Doomsday scenario
One “Doomsday scenario” in which the world economy grew at only 0.5 per cent, would involve “a $2 trillion hit” to gross
domestic product, he said, adding that collapsing oil prices had been “a contributing factor to that growing sense of
unease and panic”.
While it was difficult to predict how the international financial markets will react to COVID-19’s impacts “what they do
suggest is a world that is extremely anxious”, he said.
“There’s a degree of anxiety now that’s well beyond the health scares which are very serious and concerning.”Spend now, to avoid meltdown later
To counter these fears, “Governments need to spend at this point in time to prevent the kind of meltdown that could be
even more damaging than the one that is likely to take place over the course of the year”, Mr. Kozul-Wright insisted.
Asked about how different countries might react to the crisis including China – where the virus first emerged in
December – and the United States, the senior UN economist said that the Chinese Government would likely introduce
significant “expansionary measures” – shorthand for increasing spending or tax cuts.
“It will almost certainly do that,” he said. “Will the US Government in an election year, which is where we are…also
need to respond in a way other than simply cutting taxes and reducing interest rates? I suspect it will do.”
Turning to Europe and the Eurozone, Mr. Kozul-Wright noted that its economy had already been performing “extremely badly
towards the end of 2019”.Europe facing recession
It was “almost certain to go into recession over the coming months; and the Germany economy is particularly fragile, but
the Italian economy and other parts of the European periphery are also facing very serious stresses right now as a
consequence of trends over (the last few) days.”
Describing many parts of the Latin American region as similarly vulnerable, he added that Argentina in particular “will
be struggling as a consequence of the knock-on effects of this crisis”.Commodity-rich countries face hit from stronger dollar
So-called Least Developed Countries, whose economies are driven by the sale of raw materials, will not be spared either.
“Heavily-indebted developing countries, particularly commodity exporters, face a particular threat”, thanks to weaker
export returns linked to a stronger US dollar, Mr. Kozul-Wright maintained. “The likelihood of a stronger dollar as
investors seek safe-havens for their money, and the almost certain rise in commodity prices as the global economy slows
down, means that commodity exporters are particularly vulnerable.”
“Ultimately,” Mr. Kozul-Wright added, “a series of dedicated policy responses and institutional reforms are needed to
prevent a localized health scare in a food market in Central China from turning into a global economic meltdown”.