The Economic Shock of the Covid-19 Crisis
IMPACT OF THE COVID-19 OVER GLOBAL ECONOMY, FINANCIAL CRISIS AND SUPPLY CHAIN
If you're worried about the economic growth of the corona virus crisis you're not alone it's scary.
There is no clear forecast and each country's experience will be different here's what we do know a steady flow of money goods services and the people to make them flow is essential to a healthy economy and that flow is severed right now by life savings stay-at-home orders recession is inevitable but what kind of recession it will be and what recovery might look like is still unclear to help imagine what could happen.
Authors from Boston Consulting Group point out that recessions and their recoveries come in various shock shapes. These are determined by how hard a crisis hits the supply side of an economy that's an economy's input capital like machinery factories, software labor or workers plus productivity .
How we use labor and capital productively the heart of the supply side is hit the more credit is interrupted meaning less money is injected in the form of loans to businesses and individuals to fuel investment and the more difficult it is for productivity to recover from best to worst we have V U and L recession shock shapes.
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| economic recovery shape |
The V shape is a one-time dip if credit can continue to flow, productivity and labor are less affected; you can see that growth dips but recovers to its pre-crisis level and growth rate. U shape is much more costly, credit flow is disrupted and growth drops automatically never rebounding to its pre-crisis path the rate of growth recovers, see how the slopes are the same but a large gap between the old and new paths represents one-off damage to the economy supply-side.
The L shape is the worst credit is severely disrupted not once but endless and there is very little new investment this economy never recovers its prior output path and the rate of growth also declines the crisis leaves permanent structural damage to the economy supply-side these examples represent crises that started in the financial sector disrupting credit flow in this capital growth we have some off-the-shelf policies for dealing with these.
However we are now in uncharted territory with a double risk of a financial system shock and an epic freeze of the real economy the households firms and government that deliver real physical goods and services countries have no existing playbook for dealing with this double shock months of necessary social distancing raises the risk of both types of problems which can feed off each other in dangerous ways.
For example a prolonged crisis can drive up real economy bankruptcies of everyday people in firms making it harder for financial systems to manage and a financial system crisis would starve the real economy of credit which could cripple investment and ultimately growth in this combined crisis capital does not grow pushing the economy towards a u-shape not good .
However we can head off a you or l-shaped recovery and lessen the intensity of the crisis how primarily innovation on the medical side vaccines treatments and capacity innovations are needed to save lives and end the economic damage caused by social distancing on the economic side in addition to a vigorous and efficient policy response we will need policy innovations.
LOCK DOWN MEASURES ON LARGE SCALE FOR COVID-19 PANDEMIC
In the u.s. The 2 trillion dollar stimulus bill is just a start. We will need innovative ways to deliver that money to those who need it since never before have policy makers had to help such large numbers of firms and households.
For example the so called discount windows.That allow unlimited access to funding for the financial sector could be replicated for households and firms in the real economy so that they can stay afloat zero interest bridge loans to households and firms a stay on mortgage payments for residential and commercial borrowers these are potential solutions that could help make a real difference.
The economic goal is to keep our shocks shape closer to a V and further away from a u or an L speedy executed well medical and policy innovations are our best hope to save the most lives and avoid permanent economic damage.
Also Indian prime minister Narendra Modi asked Union ministers to prepare to boost the 'Make in India' initiative and reduce dependence on other countries. Addressing the nation, the prime minister expressed concern over the problems faced by the poor, the daily wage laborers and the farmers.
"The government has made every effort to assist them through the Pradhan Mantri Garib Kalyan Yojana. They have also looked into their interests in formulating new guidelines,"
He said.To ease the pain and distress, the finance minister last month announced a stimulus of Rs 1.7 trillion, which includes three months of free food grains and cooking gas, and Cash Dolce for Women and Poor Senior Citizens looking to reduce the economic impact. Lockdown nationwide.
According to the statement, over 80 crore poor ration card holders get three kilos of wheat or rice and one kilo of preferred pulses every three months, while 20.4 crore women who have Jan Dhan bank accounts get cash. 1,500 assistance in three months.
CONCLUSION
Despite it all — a nation on edge, with an untamed pandemic and convulsive protests over police brutality — for the first time in three months there is a scent of economic optimism in the air.
Employers added millions of jobs to their payrolls in May, and the jobless rate fell, a big surprise to forecasters who expected further losses. Businesses are reopening, and the rate of corona virus deaths has edged down.
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