INTERNATIONAL BUSSINESS ENVIORNMENT

SUBJECT: INTERNATIONAL BUSINESS ENVIORNMENT

TOPIC: IMPACT OF CORONA VIRUS ON GLOBAL ECONOMY
SUBMITTED TO: 
Asst. Prof. VAIBHAV DONGRE
SUBMITTED BY:
 ARCHIE AGARWAL
COURSE / SEMESTER
BBA LLB 6TH SEM

SESSION: 2019-2020

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DECLARATION

I hereby declare that the project work entitled “IMPACT OF CORONA VIRUS
ON GLOBAL ECONOMY” submitted for fulfilling the essential criteria of
INDORE INSTITUTE OF LAW, is a record of an original work done by me
under the  guidance of Asst Prof. VAIBHAV DONGRE in B.B.A. LL.B.
(HONS.) 6th semester, Indore Institute of Law for the Academic session 2019-
20.
 
Archie Agarwal
B.B.A. LL.B (HONS.)
6th SEMESTER

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ACKNOWLEDGEMENT

Trust in the Lord with all you heart and lean not on your own understanding; in
all your ways acknowledge Him, and He will direct your paths. 
It is not possible to prepare a project without the assistance and encouragement
of other people. This is certainly no exception. On the very outset of this project
I would like to extend my sincere and heartfelt obligation towards all the
personages who helped me in this endeavour. Without their guidance, help,
cooperation and support I would not have made headway in this project.

I am ineffably thankful to Asst Prof. for VAIBHAV DONGRE conscientious

guidance and encouragement to accomplish this assignment.

I extend my sincere gratitude to Indore Institute of Law for giving me this

opportunity.

I also acknowledge a deep sense of respect, my gratitude towards my friends

and family members who have always supported me morally as well as
economically.
Last but not the least I want to thank the almighty who made everything
possible.

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Table of Contents
1. INTRODUCTION..............................................................................................................................5
2. UNITED NATION.............................................................................................................................5
3. IMPACT ON MACROECONOMIC VARIABLES..................................................................................7
3.1. Containment Measures Have Led to Further Downward Predictions of World GDP Growth
................................................................................................................................................7
3.2. The Impact on Employment Will Be Worse Than Initially Expected...............................8
3.3. Developing Countries Are Expected to Suffer the Most.....................................................8
3.4. Capital Flight from Developing Countries at Unprecedented Rates.................................8
3.5. COVID-19 Will Set Back the Achievement of the SDGS...................................................8
4. IMPACT ON TRADE AND MANUFACTURING PRODUCTION...........................................................9
4.1. Impacts in Africa.....................................................................................................................9
4.2. Impacts in Latin America........................................................................................................9
4.3. Impacts in Asia......................................................................................................................10
5. GRAPHICAL REPESENTATION OF DOWNFALL..............................................................................10
5.1. Economic Forecasts..............................................................................................................10
5.2. Manufacturing Activity.........................................................................................................11
5.3. Stock Market Rout................................................................................................................12
5.4. Declining Oil Prices...............................................................................................................13
6. IMPACT OF CORONAVIRUS ON THE INDIAN ECONOMY..............................................................14
6.1. Sector-Wise Impact on Indian Industry................................................................................15
7. POLICY AND COPING STRATEGIES................................................................................................17
7.1. Monetary Policy Needs to Remain Supportive....................................................................17
7.2. Fiscal Support Needs to Be Enhanced Via Stronger Public Investment...............................18
7.3. Globally Co-Ordinated and More Forceful Actions Are Required If Downside Risks
Materialise............................................................................................................................19
7.4. Remedy or reform?...............................................................................................................20
7.5. Short- versus medium- and long-term measures.................................................................20
7.6. Economic mitigation policy responses by countries............................................................20
7.7. Policies to support manufacturing.......................................................................................21
8. REFERENCES..................................................................................................................................21

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ABSTRACT
This research shows how a virus if affecting the global economy. Due to corona virus most of
the countries are locked down because of which everything apart from most essential items
(i.e. Ration), construction, manufacture, production, mining or services are shutdown, which
leads to downfall in economy. This is a phase of recession. According to UN, the global
economy could shrink by up to 1 per cent in 2020 due to the coronavirus pandemic, a reversal
from the previous forecast of 2.5 per cent growth. COVID-19 pandemic is disrupting global
supply chains and international trade. In the best-case scenario global growth would fall to
1.2 per cent in 2020. In the worst-case scenario, the global output would contract by 0.9 per
cent - instead of growing by 2.5 per cent - in 2020.A s businesses lose revenue,
unemployment is likely to increase sharply. The analysis also warns that the adverse effects
of prolonged economic restrictions in developed economies will soon spill over to developing
countries via trade and investment channels. Developing countries, particularly those
dependent on tourism and commodity exports, face heightened economic risks. The decline
in commodity-related revenues and a reversal of capital flows are increasing the likelihood of
debt distress for many nations. Research also present the methods and strategies to deal with
the current problem and how to get back to track as soon as this pandemic gets over.

INTRODUCTION
Coronavirus is a large family of viruses that causes illness. It ranges from the common cold
to more severe diseases like Middle East Respiratory Syndrome and Severe Acute
Respiratory Syndrome. The novel coronavirus is a new strain of virus that has not been
identified in human so far. Coronavirus outbreak was first reported in Wuhan, China on 31
December, 2019 Some countries are starting to lift the lockdown restrictions imposed to limit
the Covid-19 pandemic. Amid sighs of relief all round on Wall Street, the hope is that it will
soon be business as usual. The shock to the global economy from COVID-19 has been both
faster and more severe than the 2008 global financial crisis (GFC) and even the Great
Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit
markets froze up, massive bankruptcies followed, unemployment rates soared above 10%,
and GDP contracted at an annualized rate of 10% or more. But all of this took around three
years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes
have materialized in three weeks.

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UNITED NATION
The global economy could shrink by up to 1 per cent in 2020 due to the coronavirus
pandemic, a reversal from the previous forecast of 2.5 per cent growth, the UN has said,
warning that it may contract even further if restrictions on the economic activities are
extended without adequate fiscal responses. The analysis by the UN Department of Economic
and Social Affairs (DESA) said the COVID-19 pandemic is disrupting global supply chains
and international trade. With nearly 100 countries closing national borders during the past
month, the movement of people and tourism flows have come to a screeching halt. "Millions
of workers in these countries are facing the bleak prospect of losing their jobs. Governments
are considering and rolling out large stimulus packages to avert a sharp downturn of their
economies which could potentially plunge the global economy into a deep recession. In the
worst-case scenario, the world economy could contract by 0.9 per cent in 2020," the DESA
said, adding that the world economy had contracted by 1.7 per cent during the global
financial crisis in 2009.It added that the contraction could be even higher if governments fail
to provide income support and help boost consumer spending.

The analysis noted that before the outbreak of the COVID-19, world output was expected to
expand at a modest pace of 2.5 per cent in 2020, as reported in the World Economic Situation
and Prospects 2020. Taking into account rapidly changing economic conditions, the UN
DESA's World Economic Forecasting Model has estimated best and worst-case scenarios for
global growth in 2020. In the best-case scenario - with moderate declines in private
consumption, investment and exports and offsetting increases in government spending in the
G-7 countries and China - global growth would fall to 1.2 per cent in 2020. "In the worst-case
scenario, the global output would contract by 0.9 per cent - instead of growing by 2.5 per cent
- in 2020," it said, adding that the scenario is based on demand-side shocks of different
magnitudes to China, Japan, South Korea, the US and the EU, as well as an oil price decline
of 50 per cent against our baseline of USD 61 per barrel.

The severity of the economic impact will largely depend on two factors - the duration of
restrictions on the movement of people and economic activities in major economies; and the
actual size and efficacy of fiscal responses to the crisis. "A well-designed fiscal stimulus
package, prioritising health spending to contain the spread of the virus and providing income
support to households most affected by the pandemic would help to minimise the likelihood
of a deep economic recession," it said. According to the forecast, lockdowns in Europe and
North America are hitting the service sector hard, particularly industries that involve physical

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interactions such as retail trade, leisure and hospitality, recreation and transportation services.
Collectively, such industries account for more than a quarter of all jobs in these economies.

The DESA said as businesses lose revenue, unemployment is likely to increase sharply,
transforming a supply-side shock to a wider demand-side shock for the economy. Against this
backdrop, the UN-DESA is joining a chorus of voices across the UN system calling for well-
designed fiscal stimulus packages which prioritize health spending and support households
most affected by the pandemic. "Urgent and bold policy measures are needed, not only to
contain the pandemic and save lives, but also to protect the most vulnerable in our societies
from economic ruin and to sustain economic growth and financial stability," Under-
Secretary-General for Economic and Social Affairs Liu Zhenmin said. The analysis also
warns that the adverse effects of prolonged economic restrictions in developed economies
will soon spill over to developing countries via trade and investment channels. A sharp
decline in consumer spending in the European Union and the United States will reduce
imports of consumer goods from developing countries.

"Developing countries, particularly those dependent on tourism and commodity exports, face
heightened economic risks. Global manufacturing production could contract significantly,
and the plummeting number of travellers is likely to hurt the tourism sector in small island
developing States, which employs millions of low-skilled workers," it said. Meanwhile, the
decline in commodity-related revenues and a reversal of capital flows are increasing the
likelihood of debt distress for many nations. Governments may be forced to curtail public
expenditure at a time when they need to ramp up spending to contain the pandemic and
support consumption and investment. UN Chief Economist and Assistant Secretary-General
for Economic Development Elliot Harris said the collective goal must be a resilient recovery
which puts the planet back on a sustainable track. "We must not lose sight how it is affecting
the most vulnerable population and what that means for sustainable development," he said.
The alarms raised by UN-DESA echo another report, released on March 31, in which UN
experts issued a broad appeal for a "large-scale, coordinated, comprehensive multilateral
response" amounting to at least 10 per cent of global gross domestic product (GDP).

IMPACT ON MACROECONOMIC VARIABLES 

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Containment Measures Have Led to Further Downward Predictions of World

GDP Growth
On 14 April, the International Monetary Fund (IMF) updated its global growth projections
from only three months ago, indicating that the global economy is expected to experience its
worst recession since the Great Depression, surpassing the deep economic slump following
the global financial crisis a decade ago. Earlier in April, the United Nations Department of
Economic and Social Affairs (UNDESA) analysed the effects of the containment measures
and projected that the world economy could, in the worst-case scenario, contract by up to 1
per cent. Similarly, the OECD stated in early March that increasingly stringent lockdown
measures in most of the world’s advanced economies would inevitably result in significant
declines in GDP growth.

World growth outlook for 20201

The Impact on Employment Will Be Worse Than Initially Expected

The ILO’s previously predicted rise in unemployment of up to 25 million in 2020, with losses
in labour income in the range of USD 860 billion to USD 3.4 trillion, seems accurate, if not
underestimated. According to the ILO, these numbers may underestimate the real magnitude
of COVID-19’s impact. The ILO’s latest summary states that the current containment
measures are affecting close to 2.7 billion workers, representing around 81 per cent of the
world’s workforce.
1
UNIDO elaboration on EIU, IMF, OECD and  UNDESA
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Developing Countries Are Expected to Suffer the Most

The crisis is expected to hit workers in low- and middle-income countries particularly hard,
where the share of those working in informal sectors, and who therefore have limited access
to adequate health and social protection, is higher. To make matters worse, the expected
massive job losses among migrant workers will likely have knock on effects on economies
that heavily depend on remittances. Furthermore, the containment measures in advanced
economies have already started impacting less developed countries through lower trade and
investment.

Capital Flight from Developing Countries at Unprecedented Rates

The rattling of financial markets, together with tightened liquidity conditions in many
countries, have led to unprecedented outflows of capital from developing
countries. UNCTAD illustrates the net debt and equity outflows from the main emerging
economies, which amounted to USD 59 billion in the month since the COVID-19 crisis went
global (21 February to 24 March).

COVID-19 Will Set Back the Achievement of the SDGS

The United Nations (UN) has expressed concern that the COVID-19 crisis will lead to a
reversal of decades of progress in the fight against poverty, and that already high levels of
inequality within and between countries will be further exacerbated. The crisis will therefore
inevitably and adversely impact the implementation of the 2030 Agenda for Sustainable
Development. The COVID-19 pandemic is expected to negatively influence almost all SDGs.
The current crisis will also severely affect the prospects for industrialization in developing
countries.

IMPACT ON TRADE AND MANUFACTURING

PRODUCTION
COVID-19 is severely impacting manufacturing production in developing countries because:

1) demand from high-income countries for manufacturing goods and raw materials is
decreasing;

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2) value chains are being disrupted due to delays in the delivery of necessary components and
supplies from more technologically advanced countries;

3) other factors, including policies (e.g. restriction of movement of goods and people),
inability of employees to reach the workplace or financial constraints, which affect the
normal production process. 

UN economists have estimated a USD 50 billion decrease in manufacturing production in

February 2020, and the IMF warns that the negative economic effects will be felt “very
intensively” in developing countries that sell raw materials. All these negative channels will
inevitably have an impact on exports from developing countries. The losses in export volume
will be further intensified by the decline in energy and commodity prices. UNCTAD projects
that developing countries as a whole (excluding China) will lose nearly USD 800 billion in
terms of export revenue in 2020.

Impacts in Africa
Fully in line with the global economic prospects, a recent report of the African Union
(AU) states that “Regardless of the scenario whether optimistic or pessimistic, Covid-19 will
have a harmful socioeconomic effect on Africa” (p. 30). Losses related to the fall of the
global oil price are estimated at USD 65 billion. Losses amounting to USD 19 billion are
expected in Nigeria alone. The crisis will also affect manufacturing firms. According to the
AU report, the automotive industry (-44 per cent), airlines (-42 per cent) and energy and basic
materials industries (-13 per cent) face even higher losses. MNE perspectives of profits in
developing countries have been revised downwards by 16 per cent. This revision amounts to
1 per cent in Africa compared to 18 per cent in Asia, and 6 per cent in Latin America.

Impacts in Latin America

CEPAL estimates a 1.8 per cent contraction in regional gross domestic product (GDP) in
Latin America, a 10 per cent increase in unemployment and a rise in the number of people
living in poverty to between 35 million and 220 million (of its 620 million inhabitants). The
number of those living in extreme poverty could climb from 67.4 million to 90 million. Much
of the negative impact could stem from the drop in the price of commodities and food (copper
for Chile and Peru, fish meal for Peru, soy for Brazil, Argentina and Uruguay, beef for
Uruguay and Argentina, shrimp for Ecuador) and the close trade relations with China, one of
the largest buyers of Latin American goods.

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Impacts in Asia
The coronavirus first broke out in China. According to the BBC, the country experienced a
13.5 per cent reduction in industrial production in the first two months of 2020. China is the
world’s largest exporter and produces one-third of all global manufacturing goods. The newly
published Asian Development Bank Outlook 2020, revising the 6 March 2020 update, asserts
that China remains the epicentre of the crisis, but developing Asia has only been hit by a 7.7
per cent decrease in industrial production since the beginning of 2020. Countries that are less
affected by the virus are India, NIEs and the ASEAN 5; their industrial production continues
to show a positive growth rate.

GRAPHICAL REPESENTATION OF DOWNFALL

China’s economy was the first to be shut down by the spread of the coronavirus, but as it
proliferates in Europe and America, countries around the world are instituting drastic
measures to try to contain it.  Businesses and offices have been closed and citizens confined
to their homes. Normal economic activity has been disrupted on an unprecedented scale in
peacetime as the patterns of everyday life are upended. Governments are intervening to try to
stave off the collapse of companies and livelihoods. Many economists believe the world has
already entered a recession.  The economic fallout from the pandemic looks to be one of the
biggest shocks in generations. The Financial Times will be tracking the fallout here.

Economic Forecasts
The outbreak has led major institutions and banks to cut their forecasts for the global
economy. One of the latest to do so is the Organisation for Economic Co-operation and
Development. In a April report, the OECD said it downgraded its 2020 growth forecasts for
almost all economies. China’s gross domestic product growth saw the largest downgrade in
terms of magnitude, according to the report. The Asian economic giant is expected to grow
by 4.9% this year, slower than the earlier forecast of 5.7%, said OECD. Meanwhile, the
global economy is expected to grow by 2.4% in 2020 — down from the 2.9% projected
earlier, said the report.

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Manufacturing Activity

The manufacturing sector in China has been hit hard by the virus outbreak.

The Caixin/Markit Manufacturing Purchasing Managers’ Index — a survey of private

companies — showed that China’s factory activity contracted in February, coming in at a
record-low reading of 40.3. A reading below 50 indicates contraction.

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Such a slowdown in Chinese manufacturing has hurt countries with close economic links to
China, many of which are Asia Pacific economies such as Vietnam, Singapore and South
Korea.  

Factories in China are taking longer than expected to resume operations, several analysts
said. That, along with a rapid spread of COVID-19 outside China, means that global
manufacturing activity could remain subdued for longer, economists said.

Stock Market Rout

Fear surrounding the impact of COVID-19 on the global economy has hurt investor sentiment
and brought down stock prices in major markets. Cedric Chehab, head of country risk and
global strategy at Fitch Solutions, said there are three ways the coronavirus outbreak could
work its way through sentiment in markets.

“We have identified three channels through which the COVID-19 outbreak was going to
weigh on markets so that’s the slowdown in China, the slowdown from domestic outbreaks
… and the third channel was financial markets stress,” he told CNBC’s “Street Signs Asia”.

Declining Oil Prices

A reduction in global economic activity has lowered the demand for oil, taking oil prices to
multi-year lows. That happened even before a disagreement on production
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cuts between OPEC and its allies caused the latest plunge in oil prices. Analysts from

Singaporean bank DBS said reduced oil demand from the virus outbreak and an expected
increase in supply are a “double whammy” for oil markets. China, the epicenter of the
coronavirus outbreak, is the world’s largest crude oil importer.

“The spread of the virus in Italy and other parts of Europe is particularly worrying and will
likely dampen demand in OECD countries as well,” the DBS analysts wrote in a report.

IMPACT OF CORONAVIRUS ON THE INDIAN ECONOMY

In terms of trade, China is the world’s largest exporter and second-largest importer. It
accounts for 13% of world exports and 11% of world imports. Up to a large extent, it will
impact the Indian industry. In imports, the dependence of India on China is huge. Of the top
20 products (at the two-digit of HS Code) that India imports from the world, China accounts
for a significant share in most of them. India’s total electronic imports account for 45% of

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China. Around one-third of machinery and almost two-fifths of organic chemicals that India
purchases from the world come from China? For automotive parts and fertilisers China’s
share in India’s import is more than 25%. Around 65 to 70% of
active pharmaceutical ingredients and around 90% of certain mobile phones come from
China to India. Therefore, we can say that due to the current outbreak of coronavirus in
China, the import dependence on China will have a significant impact on the Indian industry.

In terms of export, China is India’s 3rd largest export partner and accounts for around 5%
share. The impact may result in the following sectors namely organic chemicals, plastics, fish
products, cotton, ores, etc. We also can’t ignore that most of the Indian companies are located
in the eastern part of China. In China, about 72% of companies in India are located in cities
like Shanghai, Beijing, provinces of Guangdong, Jiangsu, and Shandong. In various sectors,
these companies work including Industrial manufacturing, manufacturing services, IT and
BPO, Logistics, Chemicals, Airlines, and tourism. It has been seen that some sectors of India
have been impacted by the outbreak of coronavirus in China including shipping,
pharmaceuticals, automobiles, mobiles, electronics, textiles, etc. Also, a supply chain may
affect some disruptions associates with industries and markets. Overall, the impact of
coronavirus in the industry is moderate.

According to CLSA report, pharma, chemicals, and electronics businesses may face supply-
chain issues and prices will go up by 10 percent. The report also says that India could also be
a beneficiary of positive flows since it appears to be the least-impacted market. Some
commodities like metals, upstream and downstream oil companies, could witness the impact
of lower global demand impacting commodity prices. According to CII, GDP could fall
below 5% in FY 2021 if policy action is not taken urgently. It is said that the government
should take some strong fiscal stimulus to the extent of 1% of GDP to the poor, which would
help them financially and also manage consumer demand. In the third quarter (October-
December) growth is slowed down to 4.7% and the impact of COVID-19 will further be seen
in the fourth quarter. Ficci survey showed 53% of Indian businesses have indicated a marked
impact of COVID-19 on business operations. And 42% of the respondents said that up to
three months could take for normalcy to return.

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Sector-Wise Impact on Indian Industry

Chemical Industry: Some chemical plants have been shut down in China. So, there will be
restrictions on shipments/logistics. It was found that 20% of the production has been
impacted due to the disruption in raw material supply. China is a major supplier of Indigo
that is required for denim. Business in India is likely to get affected so people securing their
supplies. However, it is an opportunity. US and EU will try and diversify their markets. Some
of the business can be diverted to India which can also be taken as an advantage.

Shipping Industry: Coronavirus outbreak has impacted the business of cargo movement

service providers. As per the sources, per day per vessel has declined by more than 75-80% in
dry bulk trade.

Auto Industry: Its impact on Indian companies will vary and depend upon the extent of the
business with China. China’s business no doubt is affected. However, current levels of the
inventory seem to be sufficient for the Indian industry. If the shutdown in China continues
then it is expected to result in an 8-10% contraction of Indian auto manufacturing in 2020.

Pharmaceuticals Industry: Despite being one of the top formulations of drug exporters in

the world, the pharma industry of India relies heavily on import as of bulk drugs. Due to the
coronavirus outbreak, it will also be impacted.

Textiles Industry: Due to coronavirus outbreak, several garments/textile factories in China

have halted operations that in turn affecting the exports of fabric, yarn and other raw
materials from India.

Solar Power Sector: Indian developers may face some shortfall of raw materials needed in
solar panels/cells and limited stocks from China.

IT Industry: The New Year holidays in China has been extended due to coronavirus
outbreak that adversely impacted the revenue and growth of Indian IT companies.

Tourism and Aviation: Due to the coronavirus outbreak, the inflow of tourists from China
and from other East Asian regions to India will lose that will impact the tourism sector and
revenue.

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To combat with COVID-19, Indian Government extended the date of lockdown till 3rd May,
2020. According to Du & Bradstreet, COVID-19 no doubt disrupted human lives and global
supply chain but the pandemic is a severe demand shock which has offset the green shoots of
recovery of the Indian economy that was visible towards the end of 2019 and early 2020. The
revised Gross Domestic Product (GDP) estimates for India downwards by 0.2 percentage
points for the fiscal year 2020 to 4.8 per cent and by 0.5 per cent for the fiscal year 2021 to 6
per cent. Further, it is stated that the extent of the actual impact will depend upon the severity
and duration of the outbreak.

There are three major channels of impact for Indian businesses according to the report
namely linkages, supply chain and macroeconomic factors. The data of the Dun & Bradstreet
shows that at least 6,606 Indian entities have legal linkages with companies in countries with
a large number of confirmed COVID-19 cases. And business activity in the foreign markets
is slow which implies a negative impact on the top line of these companies. Sectors that
would be much affected includes logistics, auto, tourism, metals, drugs, pharmaceuticals,
electronic goods, MSMEs and retail among others

Further, according to the World Bank's assessment, India is expected to grow 1.5 per cent to
2.8 per cent. And IMF projected a GDP growth of 1.9 per cent for India in 2020 because the
global economy is affected by the COVID pandemic, the worst recession since the Great
Depression in the 1930s. Also, we can't ignore that the lockdown and pandemic hit several
sectors including MSME, hospitality, civil aviation, agriculture and allied sector. According
to KPMG, the lockdown in India will have a sizeable impact on the economy mainly on
consumption which is the biggest component of GDP. 

Reduction in the urban transaction can lead to a steep fall in the consumption of non-essential
goods. It can be severe if disruption causes by the 21-day lockdown and affect the availability
of essential commodities. Due to weak domestic consumption and consumer sentiment, there
can be a delay in investment which further add pressure on the growth.
We can't ignore that post-COVID-19, some economies are expected to adopt de-risking
strategies and shift their manufacturing bases from China. This can create opportunities for
India. According to KPMG, opportunities will largely depend on how quickly the economy
recovers and the pace at which the supply chain issues are addressed.

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KPMG India Chairman and CEO Arun M Kumar said: "Apart from providing robust safety
nets for the vulnerable, a focus on ensuring job continuity and job creation will be
imperative". "And there is urgent need to mobilise resources to stimulate the economy for
increased demand and employment".  According to the KPMG report "It is expected that the
course of economic recovery in India will be smoother and faster than that of many other
advanced countries". An outbreak of COVID-19 impacted the whole world and has been felt
across industries. World’s second-largest economy China became standstill. Its outbreak is
declared as a national emergency by the World Health Organisation. In India the three major
contributors to GDP namely private consumption, investment and external trade will all get
affected. World and Indian economy are attempting to mitigate the health risks of COVID-19
with the economic risks and necessary measures needed will be taken to improve it.

POLICY AND COPING STRATEGIES

Leading news outlets such as the Economist or the Financial Times assert that calls
urging governments to act fast and boldly have gained increasing support across the
political spectrum. According to those same sources, economic policies that until very
recently were frowned upon have resurfaced in a number of countries to prevent a
complete economic and social breakdown owing to the containment strategies.

Monetary Policy Needs to Remain Supportive

The additional headwinds and uncertainty related to the coronavirus outbreak make it
essential for monetary policies to remain supportive in all economies to ensure that
long-term interest rates remain low. Policy has already become more accommodative
over the past year in many countries, with widespread cuts in interest rates and
enhanced forward guidance that policy easing will be forthcoming in both advanced
and emerging-market economies, and the restarted net asset purchase programme by
the ECB. Moves to enhance monetary policy accommodation are likely to be reflected
quickly in asset prices and private sector sentiment. However, after a prolonged period
of low or negative policy interest rates the impact of additional monetary policy
measures on demand and inflation may be only modest, particularly in the absence of
other fiscal and structural policy support. Conditional on the current growth
projections, there is limited need for further reductions in policy interest rates in the
United States unless the risks of a sharper growth slowdown rise. The euro area and

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Japan may face a renewed need to implement additional unconventional measures, with
sub-par growth projected to persist and inflation well below target, but have less scope
to ease monetary policy substantially. A number of emerging-market economies with
flexible exchange rate frameworks and manageable exposures to foreign currency
denominated debt, including Brazil, India and Mexico, have scope to further ease
monetary policy provided inflation declines, while taking the opportunity to undertake
fiscal and structural measures that enhance investor confidence.

Fiscal Support Needs to Be Enhanced Via Stronger Public Investment

Exceptionally low interest rates provide an opportunity for fiscal policy to be used
more actively to strengthen near-term demand, including temporary expenditures to
cushion the impact of the coronavirus outbreak on vulnerable social groups and
businesses. Provided the effects from the coronavirus epidemic start to fade, the
appropriate degree of discretionary support will depend on cyclical developments, the
size of the automatic fiscal stabilisers, debt sustainability considerations, and the need
to rebalance the policy mix.
 Some discretionary fiscal easing, decided prior to the COVID-19 outbreak, is being
undertaken in a number of advanced economies this year, including Canada, Germany,
Japan, Korea and the United Kingdom. Additional stimulus measures could be
implemented without endangering debt sustainability in a number of economies,
including Australia and Germany.
 The scope for sizeable discretionary fiscal easing is limited in some advanced
countries with relatively high debt and budget deficits, but governments can still
support economic activity by changing the structure of spending and taxes towards
areas and actions that help to contain the effects of virus outbreaks and help support
economic growth and incomes.
 A tighter fiscal policy stance, including stronger constraints on the use of quasi-fiscal
measures, remains necessary in many emerging-market economies, including Brazil
and India, but this should be achieved whilst safeguarding social transfers to low-
income groups and support for investment, both public and private.

Looking ahead, this episode of weak growth reinforces the need for stronger public
investment in many countries, broadly defined to include education and health care

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spending, to support demand and boost medium-term living standards. After an

extended period of spending restraint since the global financial crisis, signs of a
shortage of public capital have begun to emerge in several economies, particularly in
the euro area. With long-term interest rates close to zero in many advanced economies,
the social rate of return on public investment is likely to exceed the financing costs for
many projects. Investment is particularly needed in areas that have large positive
externalities for the rest of the economy and where under-investment might otherwise
occur due to market failures, including health, education, and digital and environmental
infrastructures. Enhanced use of strategic infrastructure plans that integrate central and
sub-central governments, or special public investment funds, could help to prioritise
and support long-run large scale investment projects.

Globally Co-Ordinated and More Forceful Actions Are Required If

Downside Risks Materialise
If downside risks materialise, including a much wider spread of the coronavirus
outbreak, and global growth looks set to be much lower than projected, governments
could be faced with the challenge of having to respond to significant weakness at a
time when domestic policy space is limited. In addition to temporary measures to
support viable businesses and vulnerable workers, co-ordinated policy actions across
all the major economies would be needed to ensure effective health-care provision
around the world and provide the most effective stimulus to the global economy.
Additional fiscal and monetary policy support and enhanced structural reforms in all
countries would help restore growth, improve the confidence of consumers and
investors and reduce uncertainty. Illustrative simulations for the G20 economies
highlight the benefits of economic policy co-operation. The particular set of co-
ordinated fiscal, monetary and structural measures considered includes a debt-financed
fiscal easing of 0.5% of GDP in all countries for three years, reductions in policy
interest rates in the majority of economies, and additional competition-enhancing
reforms. Taken together, these raise the level of GDP by around ¾ per cent in the first
year in the median G20 economy (Figure 9, Panel A) and by 1¼ per cent in the second
year, with the level of output permanently higher in the longer term. In all G20
countries, there are clear gains from collective action relative to those from each
country acting by itself (Figure 9, Panel B). This is because co-ordinated action creates

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positive spillover effects through trade and improved confidence, resulting in a larger
overall output gain in each country than if they acted alone.

Remedy or reform?
One key question the ongoing crisis has sparked is whether the unprecedented
economic measures could be transformed into long-lasting ones and whether they
could pave the way towards more structural reforms. In its report, the UN calls for
solidarity and widespread cooperation as a means to building more equitable, inclusive
and resilient societies that are better prepared to tackle pandemics, climate change and
other challenges.

Short- versus medium- and long-term measures

Most policy analyses in the current literature on the COVID-19 pandemic differentiate
between short-term targets and medium- to long-term goals. In the former case, the
objective is to address the immediate health situation, to protect income-generating
opportunities and to safeguard the operation of critical supply chains, i.e. necessities
and health supplies. In the latter cases, interventions to cushion the economic fallout
emphasize measures to restore supply chains, recover demand and incentivize
productive investment.

Economic mitigation policy responses by countries

As the COVID-19 pandemic is rapidly spreading across the globe, most governments
in developed and developing countries have deployed some type of policy response to
curb the immediate human and economic effects. The IMF (2020), which is monitoring
macro-economic policies (distinguishing between exchange rate and balance of
payments measures; monetary and macro-financial measures and fiscal measures), has
identified major differences across countries in terms of the breadth and scope of
economic actions beyond those related to how strict or far-reaching the adopted social
distancing and lockdown measures are (if any). The documented exchange rate
adjustments and balance of payment measures can help policymakers in emerging and
developing economies balance the difficult challenge of addressing capital flow
reversals and commodity shocks.

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Policies to support manufacturing

PwC (2020) has mapped a host of challenges for industry in light of the ongoing crisis,
including supply chains and the workforce’s global mobility. It identifies policy
measures such as extending lines of credit, reducing infrastructure costs, providing
short-term funding, lessening the tax burden and providing supply chain support that
could assist manufacturers in responding to and anticipating necessary adjustments. In
addition to all of the above-mentioned measures to mitigate the immediate economic
downturn associated with the COVID-19 pandemic, governments have also started to
extend support to manufacturing companies. Government stimulus packages
announced so far are seen as a welcome step to alleviate the immediate economic
damage caused by the pandemic, assisting severely hit businesses and promoting job
retention.

CONCLUSION
As the COVID-19 pandemic is rapidly spreading across the globe, most governments in
developed and developing countries have deployed some type of policy response to curb the
immediate human and economic effects.  But there is no certainty till when lockdown
continues, the severity of the economic impact will largely depend on two factors - the
duration of restrictions on the movement of people and economic activities in major
economies; and the actual size and efficacy of fiscal responses to the crisis. If downside risks
materialise, including a much wider spread of the coronavirus outbreak, and global growth
looks set to be much lower than projected, governments could be faced with the challenge of
having to respond to significant weakness at a time when domestic policy space is limited.

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REFERENCES
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coronavirus/
4. https://www.bbc.com/news/business-51706225
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