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Search 3rd March, 2020 Spotlight here: http://www.newsonair.com/Main_Audio_Bulletins_Search.aspx
Topic: General Studies 2:
- Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
- Issues relating to development and management of Social Sector/Services relating to Health.
In News: What started as an outbreak in China near the end of 2019 has now developed globally.
Economic consequences
The 2003 SARS outbreak, which infected about 8,000 people and killed 774, cost the global economy an estimated US$50 billion. The 2015 MERS outbreak in South Korea, meanwhile, infected 200 people and killed 38, but led to estimated costs of US$8.5 billion.
Already the coronavirus epidemic has had a greater economic effect than either of the predecessors.
India is among the 15 most affected economies due to the COVID-19 epidemic and slowdown in production in China, with a trade impact of $348 million.
Consequences
Indirect hit to confidence (wealth effect): A classic transmission of exogenous shocks to the real economy is via financial markets (and more broadly financial conditions) — they become part of the problem. As markets fall and household wealth contracts, household savings rates move up and thus consumption must fall. This effect can be powerful, particularly in advanced economies where household exposure to the equity asset class is high, such as the U.S. That said, it would take both a steep (more bear market than correction) and sustained decline.
Direct hit to consumer confidence: While financial market performance and consumer confidence correlate strongly, long-run data also shows that consumer confidence can drop even when markets are up. Covid-19 appears to be a potentially potent direct hit on confidence, keeping consumers at home, weary of discretionary spending, and perhaps pessimistic about the longer term.
Supply-side shock: The above two channels are demand shocks, but there is additional transmission risk via supply disruption. As the virus shuts down production and disables critical components of supply chains, gaps turn into problems, production could halt, furloughs and layoffs could occur. There will be huge variability across economies and industries, but taking the U.S. economy as an example, we think it would take quite a prolonged crisis for this to feed through in a significant way. Relative to the demand impact, we see this as secondary.
Geopolitics
While the health challenges and economic consequences are potentially devastating, the political consequences are harder to foresee – but might be the most long-lasting.
Could COVID-19 put in place its own legacy?
Adoption of new technologies and business models: Crises, including epidemics, can spur the adoption of new technologies and business models. The SARS outbreak of 2003 is often credited with the adoption of online shopping among Chinese consumers, accelerating Alibaba’s rise. As schools have closed in Japan and could plausibly close in the U.S. and other markets, could e-learning and e-delivery of education see a breakthrough? Further, have digital efforts in Wuhan to contain the crisis via smart-phone trackers effectively demonstrated a powerful new public health tool?
Political systems put to test: Political ramifications are not to be ruled out, globally, as the virus puts to the test various political systems’ ability to effectively protect their populations. Brittle institutions could be exposed, and political shifts triggered. Depending on its duration and severity, Covid-19 could even shape the U.S. presidential election. At the multilateral level, the crisis could be read as a call to more cooperation or conversely push the bipolar centers of geopolitical power further apart.
The Way Forward
Connecting the Dots:
