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The Economic Downturn and how it should be tackled

Updated: Oct 18, 2020

The COVID-19 pandemic is now seen as the greatest economic crisis since the Great Depression (1930s). The International Monetary Fund predicted a 3% rise in global economic growth in January. However, now it forecasts a 3% fall, while the World Bank forecasts a 5.2% shrink in the global economy, as of June, 2020.

Per capita income is expected to decline by 3.6% and force millions into poverty.

A number of countries have officially entered recession mainly due to State Lockdowns, oil price contractions (Russia-Saudi Arabia oil price war) and a collapse of the tourism and hospitality industries. Global stock markets made volatile swings due to extreme uncertainty and crashed by 20-30% in late February and March 2020.

“The COVID-19 recession is singular in many respects and is likely to be the deepest one in advanced economies since the Second World War and the first output contraction in emerging and developing economies in at least the past six decades,” said World Bank Prospects Group Director Ayhan Kose. “The current episode has already seen by far the fastest and steepest downgrades in global growth forecasts on record. If the past is any guide, there may be further growth downgrades in store, implying that policymakers may need to be ready to employ additional measures to support activity.”

It is projected that reviving the economy could take till 2025 or further.

The job loss in most countries has been rapid. The US saw 16 million job losses within the first three weeks of the pandemic (by 4th April) while the UK entered recession for the first time in 11 years and India reported a 23.9% GDP contraction in its first fiscal quarter.

Evidence shows that such epidemics have a greater impact on those with only a basic level of education rather than a person with an advanced education and skill set. The impact is not felt equally.

With rapid development in artificial intelligence in the past few decades, it is easier to substitute routine jobs. Thus, in this 'COVID-19 era' as we like to call it, demand for unskilled and semi-skilled labour has fallen drastically.

What can we do next?

Firstly, while staying at home, develop your own skill set. In the competitive economies and job markets of today, advanced skill sets are prioritised and participating in bootcamps or courses is a fast and efficient way of doing this.

Policy makers must focus on long term adversities and focus on creating a sustainable environment for economic development. Access to sick leave, unemployment benefits, and health benefits is useful for all in dealing with the effects of the pandemic but particularly so for poorer segments of society who lack a savings cushion and are thus living hand-to-mouth. Self-employed and informally employed sections of society are heavily impacted by this.

Policymakers must use the opportunity to make fundamental changes so that when future shocks inevitably occur, including for example from the effects of climate change, societies have in place risk-sharing and social assistance mechanisms that will protect the most vulnerable much better than they do today.

Thus, we must create an economic environment which would be able to face such adverities as and when they come.

Written by Urvi Agarwal

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