OPN CORONA 1-1584181310343
A University of Washington Medicine nurse conducts a coronavirus test at a drive-thru operation in Seattle, March 10, 2020. Delays in testing have set back the U.S.’s response to containing the coronavirus, and the mobile clinic that has operated since March 6 is one attempt to identify cases earlier in Seattle, the centre of the nation’s outbreak. Image Credit: NYT

As the coronavirus continues to spread and is now designated as a ‘pandemic’ by the World Health Organisation (WHO), its economic fallout is evidently plunging the world economy into a deep recession. The economic impact is already visible in the countries most affected by the outbreak.

For example, in China, the epicentre of the outbreak, the manufacturing and service sector activities declined dramatically this quarter — on a pace similar to the start of the 2008 financial crisis. This is bad news for the entire world. The outbreak forced a lockdown of the world’s eighth largest economy, Italy. The global stock markets lost between $4-7 trillion. The US has banned all travel from Europe, with the exception of the UK. Exhibitions and sporting events are being cancelled. Tourism is hit, so is transport.

Oil prices plummeted due to the diminishing demand and the ongoing price war between the world largest producers, Saudi Arabia and Russia. Given the oil price war and the coronavirus pandemic, economists believe that “it’s almost inevitable” that there will be a global recession this year.

The human costs of the pandemic have risen at an alarming rate. The first priority, of course, is clearly to keep people safe. WHO has urged countries to boost the capacity and efficiency of their health systems. Without a vaccine that can be developed soon enough to tackle the virus, most governments have taken extraordinary measures to keep their population safe. This includes travel restrictions, temporary school closures, and quarantines. These measures naturally have a strong impact on the economy.

Thus, countries need to step in and supplement their health measures with financial ones that would support their economies. Last week, we saw a few initiatives by some government like the US’ rate cut. However, those measures are not enough. The International Monetary Fund (IMF), which announced an emergency relief fund of $50 billion for low-income and emerging market countries, suggests that the governments help businesses and consumers alike with cash transfers, wage subsidies, and tax relief, in order to help people meet their needs and businesses. Central banks should be ready to provide substantial liquidity to banks and finance companies, and offer credit guarantees for the short-term needs of small and medium size enterprises. The SMEs are the ones hit the hardest by the crisis. Bold government initiatives will go a long way in minimising the devastating impact of an incoming slow down.