World Economy To Contract By 0.9% Due To Covid-19

The deadly Coronavirus has continued to disrupt businesses across the world and the world economy is already feeling the heat. Economic analysts have been forced back to the drawing board to change their growth estimates for the year 2020.

According to the United Nations Department of Economic and Social Affairs (UN-DESA), the global economy is expected to contract by 0.9 percent in 2020 as a result of the spread of the coronavirus.

The contraction is lower than the expectation of a 1.5 percent growth at the beginning of the year and the estimated 2.9 percent recorded in 2019.

Further to this, the International Monetary Fund (IMF) Managing Director, Mrs. Kristalina Georgieva, highlighted in a press release that the ongoing COVID-19 pandemic has had an immeasurable human cost and emphasized that countries need to work together to protect people and limit the economic damage.

Despite this, the IMF believes that recovery is expected in 2021 but this is dependent on how fast the virus is stopped.

IMF advises that this can be done by:

Prioritizing containment

Strengthening health systems everywhere

International Monetary Fund is also advocating for extraordinary fiscal actions by governments, such as easing monetary policy, in the best interests of the respective countries and the global economy.

Several countries have undertaken the same to spur their economies with the hope of mitigating the economic effects.

Headwinds to global growth include the drop in international trade owing to lockdowns in major economies such as China who are among the major players, which has resulted in global supply chain disruptions across the globe.

The demand for oil has also slowed down since the outbreak of the virus, mainly because of the shutdown or slowdown in major manufacturing hubs such as China and the US, causing the oil prices to plummet.

Financial and commodity markets have similarly experienced adverse effects from the spread of the virus. Most investors in equities markets, for example, have become net sellers, wiping out any year to date gains that major indices had made, as investors move away from the equities market towards fixed income safe havens such as government treasuries and bonds.

In addition, investors have moved the capital to safe-haven assets such as gold, driving the price upwards, with the YTD performance of gold increasing by 4.2 percent as of 31st March 2020, trading at USD 1,587.7 from USD 1,523.0 at the start of the year.

READ: List of Economic Recession Triggers in Kenya to Watch in 2020