The two-month lockdown caused by the coronavirus epidemic is now over in Chinese cities. BMW, Ford and Tesla’s factories are now back in operation, but who will buy their goods? From South America to India, shops are closed and people are avoiding infection by staying at home. The International Monetary Fund has announced that the world is slipping into an economic crisis. What will the world be like after the coronavirus?
According to the UN, over 3 billion people, or 40% of the world’s population, are now in lockdown. Western governments aren’t expected to begin lifting restrictions until May. What kind of blow has the coronavirus dealt to the world economy?
An unprecedented drop in production
The epidemic and factory closures have rolled back China’s economic growth. According to JP Morgan estimates, from January to March, the country’s GDP fell by 41%. In comparison, the Donbas economy shrank by that much – but in annual terms – after the war broke out there.
Production will begin to recover rapidly starting in April, but by the end of the year, China’s gross output will only have risen by slightly more than one percent. Economists had predicted that figure to be six times higher.
Production output in the European Union will decrease as much as in China. By the end of the year, Europe will be at minus-one percent. But the United States will suffer even more – in annual terms, its economy will shrink by 7%.
The epidemic has hit airlines, hotels, travel agencies, bus carriers, restaurants, clubs, the film industry, and taxi drivers. Almost every country in Europe, Asia, and South America has sealed its borders. The number of flights has already reduced by one-third worldwide. Tourism – one of the fastest growing industries in the world economy – will sustain losses of $120 billion this year; equivalent to Kazakhstan’s entire GDP.
Not only the service sector has been affected. Due to factory shutdowns in China, Europe, and South America, car manufacturers will produce 3 million fewer vehicles than planned. The number of orders for IT specialists will also drop. Statista forecasts that the global IT market will grow by just 1% instead of 5% this year.
Will it be worse than 2008?
If JP Morgan’s forecasts are correct, the coronavirus will hit the Chinese and American economies more severely than the global financial crisis of 2008–2009.
The crisis in these regions will impede the entire world economy. The International Labour Organisation has already estimated that 25 million people could lose their jobs. During the last crisis, there were 22 million.
The only consolation is that this decline will be shorter than 12 years ago.
What about us?
Over-full pulmonology and intensive-care units, and unemployment in the service sector are not the only problems post-Soviet countries will face.
Halted production in China and Europe has led to oil prices collapsing three times. $25 a barrel – Brent has never been so low since the year 2000. In early April, Urals oil from Russia was selling for $13 – cheaper than fuel oil.
This price drop will hit the budgets of petrol, oil and gas-exporting countries such as Russia, Azerbaijan, Kazakhstan, Turkmenistan and Belarus.
European analysts predict a 5% drop in GDP for Russia. The crisis in the Russian market is a blow to Belarusian equipment exporters. For hundreds of thousands of Central Asian migrants working in Russia, this crisis could mean lost or reduced earnings.
Falling demand in the West and China may affect the prices of grain and steel – Ukraine’s major export goods. The incomes of over 3 million Ukrainians working abroad are also under threat.
But the economic crisis is not the only change the coronavirus has brought us.
A new world
Zoom, Skype and FaceTime have become vital during the epidemic, and will continue to conquer the world. Online classes in schools and universities as well as telemedicine will become the norm.
E-commerce will force out traditional models. Even international politics will go online. Instead of costly – and currently dangerous – real meetings in Brussels, the European Union’s leaders are already making decisions via video-conferencing.
Working from home will become normal. Employers won’t care how many hours you’ve worked, or where; only completed tasks will matter. This will allow parents with children and people with disabilities to develop their careers.
Governments may use the pandemic to increase control over citizens. China, Israel, Singapore, and South Korea are tracking infected people’s contacts via phone geolocation, credit-card data, and surveillance camera footage. China is even using drones.
The world will start to trust experts again, and governments will raise spending on science. Disasters highlight the importance of scientific knowledge. It’s easy to be an anti-vaxxer if you’re not threatened by a deadly epidemic – right?
What’s the result?
The world has not experienced a cataclysm affecting this many people simultaneously since World War Two. The economic crisis brought on by the epidemic and lockdown will be more acute, although perhaps shorter than the last financial crisis. Problems will worsen in post-Soviet countries that depend on oil exports or income from migrant workers.
The crisis will move learning and commerce online, and working from home will become commonplace. The epidemic will also affect the relationship between government and society, as people realise that incompetent, irresponsible leaders can cost them their lives.
Whether the world grows freer or more authoritarian will depend on whether the West or China copes better with the virus and the inherent economic downturn.
The explainer was part of Belsat TV news show Vot Tak (That Way). The episode was released on April 8, 2020.
Alyaksandr Papko, belsat.eu
