The International Monetary Fund has said that the global economy has already been hit by a recession due to the lockdowns imposed to control the coronavirus outbreak. According to them, this recession will not only be worse than the 2008 Global Financial Crisis, but also the worst economic recession after the Great Depression of the 1930s.
Recession Vs depression
When the gross domestic product (GDP) growth rate is low, we understand this state as an economic slowdown. We need to note that the growth rate is still positive in an economic slowdown. A recession is the state of the economy where a country is facing a negative growth rate for more than two consecutive quarters. Depression is entirely a new ballgame altogether; it is the worst situation and it can be understood as a recession for a longer period. When a country witnesses minus 10 or even lower GDP growth rates for three years or more, we can understand that the country is going through a depression. Depression will have a lasting impact. In the last 150 years, the world has witnessed only one depression, the Great Depression of the 1030s, and it lasted for more than 10 years. At one point, the world’s GDP growth rate had touched minus 15%. The unemployment rate was 25-30% in most of the countries.
In the 2008 Financial Crisis, the worldwide GDP was down by just 1%, so it is largely understood as a Great Recession, not the Great Depression.
The World Trade Organisation’s chief Roberto Azevedo has said that economic downturn and job losses caused by the coronavirus pandemic would be worse than the 2008 recession. The Bank of France has made a statement that France is in its worst performance since 1945 as its economy shrank by around 6% in the first quarter of 2020 as the coronavirus pandemic decimated business activities. This is the worst in history ever since World War II (1939-1945) and it has been anticipated that the second quarter will get even worse to minus 10%.
There are some factual differences between the 2008 Great Financial Recession (popularly termed as Financial Crisis) and the current pandemic. In the 2008 Financial Crisis, people were still going to work, the economy was moving though it was not in good health, which seems not happening currently.
Current scenario
In the global context including India, employers are either cutting on salaries or laying off people temporarily or permanently. Estimates released by the National Sample Survey (NSS) and Periodic Labour Force Surveys (PLFS), suggested that over 136 million non-agricultural jobs are at immediate risk. Workers without formal employment contracts, casual labourers, those who work in small companies, and the self-employed are the most vulnerable. India has estimated 120 million migrant labourers, who work for daily wages, have borne the brunt of the crisis.
So far as aviation is concerned, the International Air Transport Association (IATA) noted that more than 2 million jobs are at risk only in India’s aviation sector and the case is no different in other countries.
The International Labor Organisation (ILO) has predicted that 38% of all employees in the world are either at the risk of layoff or salary cut. This gives a total number of more than 1 billion workers at the risk of layoff or pay cut. More than four out of five people in the global workforce are currently affected by full or partial workplace closures due to the Covid-19 outbreak. That is according to a new study from the UN’s International Labour Organisation (ILO), which says that about 2.7 billion of the 3.3 billion people in the workforce are currently unable to work as they usually would. It says the coronavirus crisis will lead to 6.7 per cent of all working hours globally being wiped out in the second quarter, equivalent to 195 million full-time workers.
Big companies might be better off in comparison to small businesses. They might still have the financial capability to sustain for some time with the hope of bouncing back, but small businesses are sure to face the wrath of an economic downturn.
Small businesses
Most of the small businesses might not have the capacity to bear losses for three to four months and the first move for them is to cut costs. Then, the only quick option left is to lay off their staff. This is quite evident in the Indian market already. Most of the migrant workers in India have been jobless and they do not have money to eat. The situation is so pathetic that they have now started to demand at least transportation so that they can move back to their villages.
Impact on global value chain (GVC)
The industrial production in China has fallen by 13.5% in January and February combined, compared with the previous year. This drop in the production is severe, in particular, when putting it into a longer perspective: neither the SARS outbreak in 2002/2003 nor the financial crisis in 2008/2009 was associated with any such stark drop in production. China has been a major exporter for almost all countries around the globe and this is pretty evident that the global value chain (GPCs) is going to cripple the economic activities.
Brighter side
Albert Einstein says, “In the middle of difficulty lies opportunity.” There will be enormous opportunities to leverage and those who see it are going to be winners.
Innovation
We might be able to see a lot of innovation in education sectors. Learning through a virtual platform is something very new to all of us and getting accustomed to it is no easy task since it takes time to accept changes and be comfortable with new normal.
Likewise, it is expected that technologies around online platforms are expected to get better only to provide a better experience to customers, and gradually, we can install this behaviour as business as usual (BAU).
A survey by EY.com has found that most of the executives and business leaders at the helm have already started to think about how they can speed up the automation process to stay in the game. Once the situation stabilises, executives around the globe will have to make faster moves to reimagine, reshape, and reinvent their business and create long term values. Not doing so would really be fatal to their businesses.
The most fascinating thing is every executive even with a primitive approach towards change is forced to explore alternatives as someone rightly said “Necessity is the mother of Invention” and this necessity is going to bring massive technological revolution in the days to come.
Let’s try to understand this. If you are running a business, I bet you have more than 10 thoughts in your mind and these all thoughts are around technology. You might be critically thinking and asking questions to yourself: How can I build solid technology for my business so that I can continue to stay in the game or rather become a winner. So, quite obviously, you will definitely do something. Entrepreneurs from around the globe will be focusing on technological disruptions in their respective fields. So this necessity will definitely bring a lot of inventions and this will build better lives for the entire human race.
Nepal
Unfortunately, due to the lack of data, we have very little visibility on how our economy is moving.
According to the Migration in Nepal report, there are an estimated 500,000 Nepali migrants in Malaysia, 400,000 in Qatar, 334,451 in Saudi Arabia, and 224,905 in the UAE. These four countries alone have 1.4 million-plus Nepali migrant workers. The Nepali population in India is close to 4 million. There are only speculations and assumptions, and we are sure to face some great challenges in the days to come.
Hopefully, with some government interventions as well as proactive initiatives from private sectors, we might be able to control the negative effects of the current situation. More than anything else, the need of the hour is to help businesses, especially small businesses, so that they can live until the storm passes.
The writer is the Deputy CEO of Reliance Life Insurance, but he has written this article entirely in his personal capacity.
