The United Nations Conference on Trade and Development (UNCTAD) recently highlighted the potential impact of the economic uncertainty caused by the Covid-19 pandemic. They project that it may cause a $1 trillion cost to the global economy in 2020. This assessment is based on the World Economic Situation and Prospects 2020 report released by UNCTAD.
Potential Economic Impact
The UNCTAD anticipate a global economic slowdown to under 2% for 2020, potentially costing around $1 trillion. They outline two scenarios:
The worst-case scenario is a global economic growth of just 0.5%, which would result in a $2 trillion hit to the gross domestic product (GDP).
In the best-case scenario, with moderate declines in private consumption, investment and exports but increases in government spending, global growth would only decrease to 1.2% in 2020.
Market fluctuations are expected as a result of supply chain interruptions from China and uncertainty regarding oil prices among major producers.
European Economies at Risk
Prior to the Covid-19 outbreak, European economies were already performing poorly towards the end of 2019. Europe is now almost certain to face a recession in the following months. The German economy, in particular, is vulnerable, as well as the Italian economy and other parts of the European periphery.
Vulnerability of Latin America and Developing Countries
The Latin American region, particularly Argentina, are also expected to struggle due to the knock-on effects of the pandemic. Additionally, the least developed countries whose economies rely largely on the sale of raw materials will be hit hard.
Heavily-indebted developing countries, particularly those that export commodities, face an additional threat due to weaker export returns linked to a stronger US dollar. The likelihood of a stronger dollar, as investors seek safe havens for their money, and an almost certain rise in commodity prices as the global economy slows down, place these economies at greater risk.
Policy Responses and Institutional Reforms
UNCTAD suggests that dedicated policy responses and institutional reforms are necessary to prevent this localized health crisis from escalating into a global economic meltdown. Immediate government expenditure is recommended to stave off a more damaging meltdown in future.
The Chinese government is predicted to introduce significant expansionary measures, such as increased spending or tax cuts. Meanwhile, the US government, in an election year, is urged to do more than merely reducing taxes and interest rates.
About UNCTAD
Established in 1964, UNCTAD aims to promote the development-friendly integration of developing countries into the world economy. Based in Geneva, Switzerland, this permanent intergovernmental body publishes several reports, including the Trade and Development Report, World Investment Report, The Least Developed Countries Report, Information and Economy Report, Technology and Innovation Report, and the Commodities and Development Report.
