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The First Stoppage since the Great Depression: policies to reduce the economic effects of Covid-19

5/1/2020 1:22:00 AM

Introduction:

Since January 2020, the world has changed drastically. A global epidemic, a coronavirus pandemic, has resulted in the loss of a disproportionately large number of human lives. As countries enforce the quarantines and social distancing activities that are required to control the pandemic, the world has been thrown into a Great Lockdown. The scale and speed of the operation that occurred is unlike anything that has been witnessed in our lifetimes.

This is a catastrophe like no other, and there is significant confusion about its effect on the lives and livelihoods of people. Much depends on the virus epidemiology, the efficacy of containment measures and the production of therapies and vaccines, all of which are difficult to predict.

Moreover, several countries are now experiencing several crises – a health crisis, a financial crisis, and a fall in commodity prices that connect in complex ways. Policymakers provide families, businesses and capital markets with unparalleled help and, although this is vital for a successful recovery, there is significant uncertainty about what the economic environment will look like when we emerge from this lockdown.

Based on IMF's expectation the pandemic and containment peaks expected for most countries in the world in the second quarter and declines in the second half of this year, the IMF forecast global growth to fall to -3 percent in April 2020. It is a 6.3-percentage-point downgrade from January 2020, a major change in a very short time, Which makes the Great Lockdown the worst recession since the Great Depression, and even worse than the global financial crisis in 2008.

The IMF Predicting the epidemic ends in the second half of 2020 and that policy measures taken across the world are successful in avoiding widespread company bankruptcies, widespread job losses and system-wide financial strains, the globe are preparing a recovery to 5.8 percent for global growth in 2021.

Different international reports expected recovery in 2021 is only partial as the level of economic activity which projected by World Bank. The estimated damage from the outbreak crisis to global GDP between 2020 and 2021 may be about $9 trillion, greater than the combined economies of Japan and Germany.

Admittedly, this is a genuinely global problem, because no nation exempted. States that rely on tourism, transport, hospitality and entertainment for their growth are facing major disruptions. Emerging economies and emerging economies face severe threats with unprecedented capital inflows setbacks as international risk tolerance falls and currency strains, thus resolving weakened health systems and creating more restricted fiscal space. Additionally, in a weak state with slow growth and high debt rates, many economies joined this crisis.

Obviously, both developed economies and developing economies are in downturn for the first time since the Great Depression. Growth is estimated at -6.1 percent in developed economies for this year. It is also expected that emerging markets and developing economies with natural growth levels well above developed economies would have negative growth rates of -1.0 percent in 2020 and -2.2 percent  excluding China. Income per capita for more than 170 countries expected to decline. Both the developed economies and the developing economies.

Exceptional policies:

Using lockdowns to carve the spread of COVID-19 helps health systems to cope with the virus, which then helps economic activity to restart. There is no trade-off in that context between saving people's lives and saving living standards. Countries will continue to spend heavily on their health services, perform extensive research and avoid trade controls on medical supplies. A global initiative will guarantee that both rich and poor nations have immediate access to treatments and vaccines when founded.

Policymakers would first have to ensure that people can fulfil their needs and companies can start up after the severe outbreak periods have passed. The broad, timely and targeted economic, monetary and financial policies, which many policy makers have already adopted.

The policies should adopted by countries are as following:

A.  Extending unemployment insurance, improved compensation and tax relief for families. Moreover, providing credit guarantees, liquidity services, lending forbearance for companies.

B.  Policymakers do need to prepare recuperation. With containment steps emerging, policies will quickly turn to promoting demand, encouraging firm recruiting and restoring private and public sector balance sheets to help recover. Coordinated fiscal stimulus through countries with fiscal capacity would magnify the advantages for all countries. During the recovery process, restrictions on debt repayments and debt restructuring may need to continue.

C. Intergovernmental collaboration is crucial for the global recovery's wellbeing. Bilateral creditors and international financial institutions should provide concessional funding, grants, and debt relief to enable required spending in developing countries. Activating and creating swap lines between regional central banks has helped ease foreign liquidity shortages, and will need to be extended to more economies. Cooperative strategies are required to ensure the world does not de-globalize, so that output losses do not harm the recovery.

D.  Prepare to take maximum advantage from international organizations supports such World Bank and International Monetary Fund, for instance, IMF aggressively expanding $1 trillion lending ability to help vulnerable countries, including through rapid disbursement of emergency financing and debt relief to our poorest member states, and we call on official bilateral lenders to do likewise.

The above policies will extend in the stabilization phase to mitigate chronic wounds in this extreme downturn that could result from underinvestment and job losses.

In Sum, this coronavirus pandemic is the worst since the Great Recession in 1929. The global forecasting for growth to fall to -3 percent in 2020. There are several policies could be implementing by countries to enhance economic activities and stabilize the standard of living of their people. The most important policies to support the state’s economy is fiscal capacity, which magnify the advantages for all countries. During the recovery process, restrictions on debt repayments and debt restructuring may need to continue.