Covid-19 : The terrifying numbers of a global crisis slowly unravelling before us
TruePublica Editor: Leaving aside the devastating effects on the lives of people, the rapidly intensifying economic effects of COVID-19 on the world of economies and employment is already proving to be far worse than the 2008-9 financial crisis. And from a democratic point of view, more than two billion people live in countries where parliaments have been suspended or restricted under coronavirus emergency measures. What we are all witnessing is the implosion of the globalised world that we live in. The immediate ramifications are yet to be fully felt but will be with us for years just as the 2008 financial crisis was. Here are the terrifying numbers.
Officially, the global unemployment rate at the end of 2019 was 4.94 per cent – equivalent to about 380 million people. The coronavirus pandemic has now just about reached every country in the world and will very quickly, according to the UN, end the employment of another 200 million. Then, a steady flow of millions more will see a decade of new jobs created rolled back to when the 2009 financial crisis was hurting the most. But there’s worse to come.
The UN has calculated that workers in four sectors that have experienced the most “drastic” effects of the disease and falling production are: food and accommodation (144 million workers), retail and wholesale (482 million); business services and administration (157 million); and manufacturing (463 million).
Together, they add up to a staggering 37.5 per cent of global employment and this is where the “sharp-end” of the impact of the pandemic is being felt right now, Guy Ryder, of the International Labour Organization said.
In the developed countries around the world, policy responses have already focused on providing immediate relief to workers and enterprises in order to protect livelihoods and economically viable businesses, particularly in hard-hit sectors. This is not the case for less developed countries. New research published this morning by the United Nations University expects half a billion people or 8 per cent of the human population will be thrown straight into poverty, the first increase in 30 years and the fastest on record.
Malnutrition, starvation and disease will escalate if these people are left to fend for themselves. Oxfam is calling on world leaders to agree on an Emergency Rescue Package of 2.5 trillion USD paid for through the immediate cancellation or postponement of 1 trillion in debt repayments, a 1 trillion increase in IMF Special Drawing Rights (international financial reserves), and an additional $500 billion in aid.
Andy Sumner, Professor of International Development at King’s College London said of these findings – “We were surprised at the sheer scale of the poverty tsunami that could follow COVID-19 in developing countries. Findings point towards the importance of a dramatic expansion of social safety nets in developing countries as soon as possible and – more broadly – what the international community can do to help”.
The immediate loss to the global economy in terms of business activity is already calculated to be in the region of $1trillion, with another trillion expected to be lost in the months ahead. The economies of Europe and America will cliff dive straight into recession territory. Heavily-indebted developing countries, particularly commodity exporters, face a particular threat. Oil producers face a truly dire year ahead with less being sold on the one hand with a price crash on the other.
Predictions about the future have already been wildly off the mark. Take Tedros Adhanom Ghebreyesus at the World Health Organization on March 17th. He said it was important not to let grim milestones such as passing the infection rate of 100,000 worldwide, sap resolve to contain the disease, stressing that 93 per cent of deaths so far have been in just four countries. It would be “the first pandemic in history that could be controlled. The bottom line is, we are not at the mercy of the virus”, he added. Just two weeks later, a full global pandemic unravels, economies have cratered, governments are pouring trillions into defending markets and the lives of hundreds of thousands of people across the world are threatened.
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Global stock markets have been pulverised. Some indexes have lost up to half their value. The Dow Jones went from 29,551 on Feb 12th to 18,591 in just five weeks. The FTSE100 has lost over 30 per cent in the same period. Both have gained some ground since, but all the expectations are, that round two of falls are on the way as the reality to the effects on the world economy unfold. The truth here is simple – as Jamie Powell at FT explains: “the problem in the era of coronavirus is that nearly all company earnings, without massive government intervention, are going to zero. Indiscriminately. So really, everything is overvalued.’
In 2009, the financial crisis had already crashed just about everything, and yet, earning per share the following year still fell another 23 per cent. Everyone now knows this. The trouble is, Goldman Sachs, like others are predicting worse to come with a 45 per cent earnings collapse prediction for 2020 in the Stoxx600 (European markets) – double the losses incurred compared to the financial collapse a decade earlier.
Debt defaults will perform like the virus has – in a fashion that is highly contagious. But it hasn’t started … yet. The combination of these economic downturns will result in capital flight, then commodity price collapses (as we have seen), then onto political instability and what is termed a pervasive “risk-off” sentiment in the markets.
Corporate debt defaults will plague the markets, employment and economies for several years to come. Many companies have already been known to be locked out of refinancing or selling new debt and face a financial brick wall. Bond defaults are expected to quickly accelerate in the second half of the year. More widely, in the coming months, some countries will be unable to refinance their debts. ‘Sovereign debt crisis’ is a term you’ll hear about a lot more about in future. The IMF and World Bank will be swamped and will not be able to plug the holes.
The year 2020 is already being written into our history. It’s a civilisational story, like the world wars. The battle between us and Covid-19 will see millions infected and who knows how many will lose their lives. It will be recorded as a test of our humanity and how we closed ranks to protect ourselves. And just like the effects of any war, it will increase poverty and inequality in equal measure. The poor will be hit the worst and the rich will take it as an opportunity to make money. We really do only have one chance to get this right and there are some examples to show the way. The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939. It responded to needs for relief, reform, and recovery from the Great Depression. It is considered one of the greatest socio-economic reactions to market collapse and human misery ever – and got a nation back on its feet. There is no chance of such an event emanating from Trump’s America. The creation of the European Union was a response to WW2 and for decades was a great success. Currently, their finance ministers have failed to agree a bailout plan after a marathon meeting to mitigate the worst-affected member states despite more than 16 hours of negotiation.
This time, it looks far more likely that our collective human reaction will be more akin to a sinking ship. This is because half of the world’s population is now run by populists leaders. The problem this time is that there aren’t enough lifeboats having used most of them to save the banks last time.