The hyper-connected world is shutting down; at speed, we would never think a few months before. Day to day hustle of life in all the happening cities around the globe is facing massive lockdowns leaving us in ghost towns with bans on public gatherings to travel restrictions. This is an unprecedented response from the world to slow down the spread of a pandemic disease COVID-19. But, when will this end, and when will we be back to our normal life with meeting our friends over a coffee, attending mass gatherings or traveling the world, is yet a far answered question.
It can go for a long time, even maybe for months. The answer to COVID-19 is still shutting down large parts of the connected societies. But we all know this is not going to be sustainable for long, and the social and economic damage would be shattering.
The challenge for countries will need to find a strategic choice – a way of lifting the restrictions and getting back to normal. At the current trend, the Coronavirus is showing no sign to disappear. The cases will inevitably soar if the restrictions are uplifted.
The Coronavirus, which surfaced in a Chinese seafood and poultry market (supposedly) in Wuhan late last year, has spread to at least 199 countries, taking more than 30,000 (approx.) lives and sickening hundreds of thousands of people in a matter of months. The World Health Organization has declared the situation a Pandemic. The number of affected and death cases is growing exponentially, as the global infection rate continues to accelerate, with countries across multiple continents now grappling with fast-expanding outbreaks of their own.
Uncertainty over predictions on Economics, where it’s heading?
Initially, economists thought the recession due to the dramatic slowdown of the overall lifestyle and economy of the world was just like a ‘V’ , where a sharp decline is followed by a sharp rise back to its previous peak. As it was considered a Chinese problem and the country was dealing with it persuasively. So, the expectation was that the economy would be in full-power after a small shock with all its’ inner strengths. As time went by, the economic impact of Covid-19 has proved to be costlier than expected.
In the 21st century, the world has experienced few pandemics such as Severe Acute Respiratory Syndrome (SARS) in 2002, N1H1 (Bird flu) in 2009, Middle East Respiratory Syndrome (MERS) in 2012 and Ebola in 2013-14. But the Novel Coronavirus or Covid-19 is different for its exponential growth and attacking behaviors.
Wall Street economists are unanimously declaring that the Coronavirus has forced the first worldwide recession since 2009’s 0.8% contraction, but they are uncertain on the depth. “The day the earth stood still,” is how economists at JPMorgan Chase & Co. are putting it.
Most predict worst for China in the first quarter and the rest of the world in the subsequent three months. JPMorgan predicts 40% plunge in Chinese GDP in the first quarter from the previous one while predicting a 14% drop in the U.S. in the second quarter is the most significant contractions in at least 50 years. Such sudden fall is enough for a world recession, which because of typically fast-growing emerging markets, most economists say to grow below 2.5%. But uncertainty toward recovery from the virus put a huge doubt over 2020 predictions. The JPMorgan economists project a 1.1% slump over the year, while those at Citigroup Inc. expect growth of 1.4%.
The regions hit by the Coronavirus are experiencing a dual thrust in business Operations. All over Asia, Europe, and the U.S. are being disrupted by factory closures, quarantined workers and shortages of raw materials, availability crisis of goods and services. This is creating a supply gap. On the other side, rising fear is causing consumers and businesses to hold back, avoiding tourism and business travels, reducing luxury purchases, wary over an uncertain future due to lockdown, creating a demand gap.
The combined impact is driving the global economy into a crisis, fueling market turmoil and prompting many executives around the world to prepare for a worse situation than before.
Bangladesh should prepare for the worst, the fault-lines to be kept in check.
Bangladesh’s GDP may contract by as much as 1.1 percent in the hypothetical worst-case scenario of a significant outbreak of Coronavirus in the country, said the Asian Development Bank (ADB) in a recent analysis. That means, the novel virus, could wipe $3.02 billion off the $300 billion-plus economy with a probability of losing around 9 million jobs.
A few weeks ago, people of Bangladesh were living peacefully, traveling freely, doing their jobs perfectly; the economic growth projections were shining like a staggering growth in the past decade. But the exponential spread of the novel Coronavirus or Covid-19 virus and its deadly effect made it clear that Bangladesh’s economy is no exception while it is wrecking the world economy in an unprecedented way.
In Bangladesh, Coronavirus is likely to impact the economy through four critical channels:
- Transmission of the expected global economic meltdown in export demand in the EU and US due to lockdown and cutting down trades of non-essential imports until the situation improves. To worsen the scenario we know, the EU alone accounts for 62 percent of exports from Bangladesh, and the US is the largest destination country for the country’s exports.
- Supply shock from the largest trading partner China as the epicenter of the virus outbreak has impacted many industries in Bangladesh for raw materials, including garments, pharmaceuticals, and many more.
- Contraction of domestic demand in the domestic economy as it is feared to be spread in the world’s most densely populated country. There are direct impacts on production, supply chain, and market disruption, as well as the impact on firms and financial markets. The financial sector, specifically the banking sector in Bangladesh, can be the most affected sector due to their responses during all crises, such as the sovereign euro crisis and the global financial crisis. If banks fail, the Small and Medium Enterprises (SMEs) will be more affected.
- The slowdown in economic activities due to lockdown for uncertain times. The uncertainty will hurt the biggest as the economic strength is mainly dependent on labor-intensive industries.
Bangladesh is on the verge of panic and deadly crisis; the success depends on how the policymakers of the country and financial institutions deal with the situation with due diligence. The government and policymakers should be cautious about sending a message of cohesion, accountability, and leadership to prevent fear and panic. Singapore can be a great learning example of dealing with the issue since The Chinese New Year. The policymakers should take multi-faceted strategic, fiscal, health, and other policy responses to deal with this kind of unprecedented situation.
Health Care First: The country should first focus on the health sector for supporting all essential expenditure on prevention, containment, and mitigation of the virus, including a better working environment for the health care personals involved in the treatment.
An All-Inclusive ‘Bangladesh’ Effort: The government, political parties, NGOs, corporations, social organizations, business people, financial and non-financial institutions, and the people of Bangladesh should come forward and work together to handle this pandemic and minimize both the economic and non-economic losses.
Emergency Economic Package: Bangladesh Bank has already taken measures to bring interest to a single digit to support SMEs. Bangladesh Bank has relaxed the loan repayment system considering the impact of Coronavirus on trade and business. The policymaker (s) should put in place an emergency economic package of at least Tk. 25,000 crore (about $3 billion or 1 percent of GDP) and should remain committed to supporting workers and entrepreneurs with more resources if needed.
Live Digital: Bangladesh Government should embrace and instruct all financial, non-financial institutions, educational institutions, and all government and non-government institutions to set up cloud-based work at home facilities so that they can continue their smooth operation during such crisis. This is a high time to live up to the Digital Bangladesh vision.
Diversify The Future: The most significant reason for the worse impact of Covid-19 in Bangladesh’s economy is due to over-dependency on the labor-intensive garment industry. As a long-term action plan, the government should focus on diversifying its’ export income in a skill driven talent industry using its demographical dividend.
Bangladesh has been through natural disasters & human-made crises many times in her history towards becoming an emerging economy that is forecasted to be the 25th largest economy by 2034. Bangladesh always came back like a phoenix every time something bad happened to it. This time will pass too, but the actions we take in the next few weeks as a nation will define the future we’ll live in.
About the author
Ruhul Amin, CA (Bangladesh), CMA (Australia) is the Chief Strategy Officer of Robi Axiata Limited.